Poll: predict our economic future

[wabmester]

Pick your favorite doom, gloom, or party scenario.

[brewer12345]

I picked "like the last 20 years". Yes, we had growth and a great bull market, but we also had multiple market collapses (1987, 1998, 2001 come to mind), gyrating currencies (Japan, especially), a bond market collapse in 1994, a commodities market slump that lasted for years, the S&L crisis and associated implosion of the real estate market, and on and on and on...

Even periods with good returns include some stomach churning events.

[wabmester]

If you think that we'll get a repeat of the last 20 years, I really see no reason to hedge.* *Those were short-term and relatively painless corrections, so just gritting your teeth and staying in the market would have worked fine (in fact, that's what got many to ER).

But, I also can't imagine a repeat.* *That era was basically characterized by the emergence of the personal computer (and the internet), cheap energy, low inflation, great demographics, etc.* *If there's going to be something that will impact productivity as much as the PC, we'd already know about it now.* *And we know that the oil supply and demand character is changing.* *We also know that demographic trends are changing for the worse.

I'm a long-term bear.

[brewer12345]

Hmmm, just to play Devil's Advocate:

- I am surprised how resilient our economy has been to high energy prices. Clearly we aren't going back to $20/bbl crude, but it may not be the impediment to growth one would otherwise think. Time will tell.

- Technology: this is a funny one. Remember all the quotes from ~20 years ago about how nobody could imagine why anyone would want a personal computer? I bet the next transforming technology is already out there. Maybe it is nanotech. Maybe it is the electric motors Borealis is supposedly working on (Andrew Tobias frequently writes about it). Maybe we haven't heard about it yet. There are too many smart people working in this stuff not to come up with something fantastic.

- Demographics: Everybody is worried about the boomers, but we all seem to forget about the boomers kids and the burgeoning population of developing countries (and immigrants). It doesn't scare me.

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I'm a long-term bear.

Well, it much easier for the human psyche to believe in 'bad' scenarios. *

But, I think that with the price of oil being high, it brings with it a whole new series of opportunities. I am a bear on the american middle class, but I see Amercian companies doing quite well selling their wares to to emerging markets like China and India.

An article in the Minneapolis Paper today on one of our local companies (Dairy Queen) expanding in China. The Chinese will get hooked on those Peanut Butter Chocolate Blizzards, just like I did!

I voted that our economy will be like the last 20 years. Not the stock market, the economy. I don't see the huge growth in stock prices like we had in the last 20 years.

[Jarhead*]

Like the great poet and philosopher "Mike Tyson", said once. Everybody has a plan until they get a short right hand to the forehead.

IMHO, I think the housing market is going to deliver quite a punch when it finally implodes.

Have no idea what form this dislocation will take, but it's not going to be a helluva lot of fun.

The housing market, stocks, bonds have been far too kind for the last 20 years or so, and in my opinion, the parties over for a while.

I, for the time being, am solidly in the bear camp.

I'm not losing any sleep over it though.

[mikew]

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Originally Posted by Cut-Throat An article in the Minneapolis Paper today on one of our local companies (Dairy Queen) expanding in China. The Chinese will get hooked on those Peanut Butter Chocolate Blizzards, just like I did!

Baskin robbins just opened a new store here in Kyoto!

[Michael]

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IMHO, I think the housing market is going to deliver quite a punch when it finally implodes.

The boomers won't want to hear that.* Many of the boomers on the coasts plan to retire by forcing their children to pay millions for their aging homes.* They think that by using zoning laws to forbid their children from building homes of their own, parents can make their children bid up the prices of existing homes at the rate of 20% per year indefinitely.* Instant wealth.* No saving needed.* Plus they get to take out 3rd mortgages to live lavishly now.

Ingenious.

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Originally Posted by Michael The boomers won't want to hear that.* Many of the boomers on the coasts plan to retire by forcing their children to pay millions for their aging homes.* They think that by using zoning laws to forbid their children from building homes of their own, parents can make their children bid up the prices of existing homes at the rate of 20% per year indefinitely.* Instant wealth.* No saving needed.* Plus they get to take out 3rd mortgages to live lavishly now. Ingenious.

Well, I'm a boomer and it doesn't bother me! - The real estate market is filled with a lot of different age groups 20's thru 70's, but you seem to have a particular problem with just the boomers. Borrowing and Living lavishly is not a 'Boomer' thing, but an 'American' thing.

I have seen you rag on the boomer generation in many of your posts. Can you explain to us what your concern is here? Someone of that age group must have really done you wrong, but everyone in that generation is not out to 'get you'. I'll bet your parents are even in that generation.

Just wondering.

[Caroline]

I"m no economist -- my opinion is based primarily on personal feeling and perhaps that's an unreasonable feeling.

But when I think about the economy and where it's going these days, I keep going back in time to the same historical place -- to the war in Vietnam.

Entire article here: http://www.swans.com/library/art10/mgarci08.html


...The American citizen will most likely experience the impact of war through deficits, inflation, taxes (if raised) and social services (if cut).

...If the war is financed by deficit spending, because there is no will to increase taxes, cut social spending and eliminate subsidies, then government debt would be accommodated by selling bonds and printing more money. The printing of money (expansion of the money supply) is inflationary, so it is unlikely to be tolerated by the lending class, who resent the implicit taxation of having lent out "strong" dollars to be repaid with "diluted" ones.

American debt is spread across the world by the sale of bonds, so an inflationary wartime economy with deficit financing would have its investors (including foreign governments) see their assets shrink. ... So, bond investors pressure the US government to curb inflation, and other governments pressure the U.S. to rein in its deficits. This occurred in 1967-1968, when European economic pressure forced the Johnson Administration to cut $2.5B in social welfare spending and to seek a tax increase to pay Vietnam War costs.

In selling bonds, the government vacuums investor funds that could have gone into the private economy, say in funding new home construction or new business ventures. Increased public debt without an increase of the money supply or a job-creating economic expansion (today's trend) will cause a rise of interest rates for private investment and consumer credit. While a good situation for those wealthy enough to lend money, it dashes the hopes of those wishing to move out of rental housing by purchasing a home, or of starting a small business, or of financing home improvements. Obviously, at the lowest stratum of our economy, people might see a withdrawal of both social services and financial opportunities (e.g., fewer jobs), which could have life and death consequences.

It was the accumulating costs of the Vietnam War that reversed the historic expansion of the US economy and standard-of-living between 1945 and 1971. This was the time of abundance and expanding opportunity that gave meaning to the phrase "the American way of life." War kills that kind of dream from the bottom up. It increases the gap between rich and poor, and it opens the nation to policy vulnerabilities created by the threat of fiscal manipulation by owners of our government debt, owners including foreign governments and unsympathetic financial interests (e.g., Saudi oil wealth and Asian capital invested in US debt).

[wildcat]

Few bumps, maybe even a pothole...continued growth over the long haul

Even though some stats look pretty crappy you can't count the US out for good if you ask me. It has happened it the past and we always seem to find a way.

[Michael]

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I'll bet your parents are even in that generation.

Actually, I'm a boomer myself. I certainly have nothing against myself.

[laurence]

Well, we are running huge deficits, and have a huge debt, and no one has the guts to cut spending (just look at that energy bill- oink! oink!) and politicians have painted themselves into a corner so that no one dares be the first to raise taxes. All this equals inflation. Print more money, chase those goods. Only way the government get out from under this mountain. My hedge was to take advantage of these super low interest rates over the last year and lock everything in that I couldn't pay off. Even if my raises barely keep up with inflation, at least my mortgage will feel like $100 a month.

[Jarhead*]

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Originally Posted by Laurence Well, we are running huge deficits, and have a huge debt, and no one has the guts to cut spending (just look at that energy bill- oink! oink!) and politicians have painted themselves into a corner so that no one dares be the first to raise taxes.* All this equals inflation.* Print more money, chase those goods. Only way the government get out from under this mountain.* My hedge was to take advantage of these super low interest rates over the last year and lock everything in that I couldn't pay off.* Even if my raises barely keep up with inflation, at least my mortgage will feel like $100 a month.*

Laurence: Personally, I think that was a good move for you.

I hope I'm wrong, but this economy is starting to feel more and more like it has the potential to be mired in "stagflation". (Complete with an expensive overseas situation.) Viet Nam, Iraq.

In 1965, I was married with two small children and a stay at home wife. I was able to get through and pay the bills, because I either had a 2nd. job or a side business until 1987. (1987 was the year that I said "uncle".)

In any case, like I said, I hope I'm wrong because the only real defense in that environment is a job.

[dory36]

It's gonna go one way, then the other.

Index funds, 4%, and look at 'em every 12/31.

Otherwise, enjoy your ER.

[wabmester]

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Originally Posted by brewer12345 Demographics:* Everybody is worried about the boomers, but we all seem to forget about the boomers kids and the burgeoning population of developing countries (and immigrants).* It doesn't scare me.

To me, the interesting thing about the demographics trend is that we'll have a pretty big heads-up about what to expect. Germany, Japan, and Italy all have the same sort of boomer retirement wave happening, but it's happening for them now rather than 10-15 years in the future. And the impact for them will probably be larger than it will be for us, since they all are more socialistic than we are.

In any case, it'll be interesting to watch.

[mikew]

Seigel wrote in his new book that the stock mrkt would be safe as the boomers retire because the chinese will buy our stock. This seems pretty iffy to me for a lot of reasons from nationalism to projected decreasing US stock returns to currency problems etc.

One thing about an aging society is you never get to sit on the bus.

Mike

[Marshac]

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Originally Posted by mikew Seigel wrote in his new book that the stock mrkt would be safe as the boomers retire because the chinese will buy our stock.

Or if 'private accounts' show up as part of SS.

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Originally Posted by mikew Seigel wrote in his new book that the stock mrkt would be safe as the boomers retire because the chinese will buy our stock. This seems pretty iffy to me for a lot of reasons from nationalism to projected decreasing US stock returns to currency problems etc. One thing about an aging society is you never get to sit on the bus.* Mike

Vanguard pointed out in their recent newsletter that this is unlikely to happen for a variety of reasons.

1.) the richest 10% of U.S. House holds own 88% of individual equities.

2.) Withdrawals will happen over time

3.) Market participants go beyond Boomers.

[mikew]

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Originally Posted by Cut-Throat 1.) the richest 10% of U.S. House holds own 88% of individual equities.

Cut-Throat
I didn't understand this. Does this exclude mutual funds, foriegners, business holdings? 88% seems awfully high. But with the savings rate so low...

Mike