Run don't walk from this market

[wolfbay]

Like? I am genuinely interested because I don't get the widespread and deeply felt pessimisim.

You and I have a different opinion of the German mood. The Greek situation is not solved.There is going to have to be yet another bailout needed and the Germans aren't going to put up with it IMHO. Also it is not clear this is a self sustaining recovery. The fed prints trillions, treasury borrows trillions and this is the recovery we get? If the Fed starts talking about QE3 or some other never before tried experiment in the next 12 months or so it won't be a good sign. The next year or two should be interesting. Calling someone an IVY LEAGUE economist might wind up being the ultimate insult.

 

[brewer12345]

One question I have is how pessimistic can people be if Shiller PE10 is ~23?

Tha does not strike me as pessimistic, not matter what the media might be saying. Rodriguez is bearish, genius James Altucher is extremely bullish, and so it goes.

Ha

I personally am not sold on the usefulness of PE 10.

I guess I look at a market where businesses have improving operating fundamentals, solid balance sheets, intelligible business plans, spew gobs of cash, etc. and you cannot give them away. That does not look like exuberant optimism. OTOH, I see signs of foolish valuations in most sectors of the bond market.

 

[brewer12345]

You and I have a different opinion of the German mood. The Greek situation is not solved.There is going to have to be yet another bailout needed and the Germans aren't going to put up with it IMHO. Also it is not clear this is a self sustaining recovery. The fed prints trillions, treasury borrows trillions and this is the recovery we get? If the Fed starts talking about QE3 or some other never before tried experiment in the next 12 months or so it won't be a good sign. The next year or two should be interesting. Calling someone an IVY LEAGUE economist might wind up being the ultimate insult.

Thanks for the response. We don't agree, but it is helpful to hear your take.

 

[brewer12345]

Civil wars breaking out in the oil producing region of the world appear to be getting worse

Are they? Egypt has calmed down, Libya is now on the slow boil, the Saudis appear to have bribed/threatened their populace into aquiescence. Yemen is blowing up, but that place was always a basket case, ditto Syria. What am I missing? Bahrain?

I have actually been amazed at how quickly things simmered down.

 

[haha]

The great thing about these discussions it that it matters not one whit what we think or say, the markets will rule and debate will be over.

Ha

 

[GregLee]

Well I don't think we are being at all irrational to be fearful.

• Horrible jobs report
• Exceeded the debt limit and no progress on reaching an agreement
• Inflation is picking up except for housing
• Housing market is dead and despite record low interest rates and affordability shows no signs of life
• Civil wars breaking out in the oil producing region of the world appear to be getting worse
• European debt crisis is worsening

While not generally being of a paranoid persuasion, I do have something like a devil theory of the stock market. I think when the big players see a bull on the way, they need to force out the small players. It has to be a persuasive case to get us to sell, but when the case is being made that the market is about to go down, down, down, what it really means is that the market is soon to go up, up, up.

 

[clifp]

Are they? Egypt has calmed down, Libya is now on the slow boil, the Saudis appear to have bribed/threatened their populace into aquiescence. Yemen is blowing up, but that place was always a basket case, ditto Syria. What am I missing? Bahrain?

I have actually been amazed at how quickly things simmered down.

After listening to various talking heads on Charlie Rose, and the Newshour, I think the situation is getting worse not better.
Yeman basket case in the past, slightly worse with the President being wounded.
Bahrain formerly stable government, keeping a tight lid on a highly pissed off population, with additional problems of Shia, Sunni tensions. Modest oil producer
Libya, formerly stable police state, now engaged in a civil war with no signs of ending soon, significant oil producers
Syria formerly very stable police state, standing on the bring of a civil war. No hope of a quick resolution
Egypt formerly stable government moderate with respect to Israel. Now they have accomplished the easy goal getting rid of Mubbark, but have made little traction in forming any type of government.


Compared to the situation say a several months ago. We have replaced a couple of potential civil wars, Tunisia and Egypt, with 3 actual civil wars. And neither Tunisia or Egypt are out of the woods.

 

[brewer12345]

After listening to various talking heads on Charlie Rose, and the Newshour, I think the situation is getting worse not better.
Yeman basket case in the past, slightly worse with the President being wounded.
Bahrain formerly stable government, keeping a tight lid on a highly pissed off population, with additional problems of Shia, Sunni tensions. Modest oil producer
Libya, formerly stable police state, now engaged in a civil war with no signs of ending soon, significant oil producers
Syria formerly very stable police state, standing on the bring of a civil war. No hope of a quick resolution
Egypt formerly stable government moderate with respect to Israel. Now they have accomplished the easy goal getting rid of Mubbark, but have made little traction in forming any type of government.


Compared to the situation say a several months ago. We have replaced a couple of potential civil wars, Tunisia and Egypt, with 3 actual civil wars. And neither Tunisia or Egypt are out of the woods.

I will have to do some more digging. Egypt matters and although there is a certain amount of confusion it has not gone nearly as badly as I initially feared. Bahrain matters, but things seem to be simmering there, rather than actively boiling over. I have to look more closely at recent events in both countries as I have not been closely following it lately.

Libya is gradually being won by the rebels/NATO and as soon as they box Gaddafi in to a corner he can fester their until he drops dead and it will not matter.

I don't think Tunisia matters all that much. Anyone know?

Syria and Yemen are, have been, and unfortunately probably always will be a mess. Fortunately, that is all anyone expects of them so they will remain a boil on the arse of the world rather than rectal cancer.

 

[mexico]

Like? I am genuinely interested because I don't get the widespread and deeply felt pessimisim.

Perhaps it's because the US jobs market is at its worst levels in decades. If you are unemployed- especially in certain fields- you might feel discouraged.

Next on the list would be the condition of the US housing market. Will it correct eventually? Of course, but recent data is ugly and has a lot of people worried.

 

[Gone4Good]

You and I have a different opinion of the German mood.

To paraphrase an old saying . . . 'When you owe the bank €1MM, the bank owns you. When you owe €325B, you own the bank."

 

[brewer12345]

Perhaps it's because the US jobs market is at its worst levels in decades. If you are unemployed- especially in certain fields- you might feel discouraged.

Next on the list would be the condition of the US housing market. Will it correct eventually? Of course, but recent data is ugly and has a lot of people worried.

I am in the housing market as both a buyer and a seller, and I am well aware of the mess. That said, we are finding our way toward the bottom as it is now noticeably cheaper to buy rather than rent in both the market where I am buying and the market where I am selling.

Perhaps we just have different expectations on jobs: I expect a long, slow recovery as is typical of what happens after a credit crash. I also expect ocasional blips and stalls along the way. The key to happiness is low expectations...

 

[Shawn]

What is amazing to me is how quickly the dominant refrain has switched from positive to negative in just about every media outlet, online discussion, etc. Its like watching someone flip a switch.

Interestingly enough, the Bob Rodriquez article linked by the OP was written at least 2 month ago. A similar article came out in the June issue of Money Magazine, which probably went to press in early May. This means that the article was written in April at the latest. The market was doing pretty well when this "doom and gloom" article was being produced. So this doesn't appear to be a positive to negative flip of the media switch.

I agree with you, though, that sentiment can rapidly change. Time will tell if this past month marks the beginning of the end of us all, or if it is just another one of those never-ending blips on the radar screen.

 

[Nords]

I assume you are not retired with good income.Some of us retired people might be less sanguine about a possible major correction.

Another buying/rebelancing opportunity.

What DD said.

"Good income" dividend stocks seem to be doing just fine so far.

Part of the FIRECalc assumption is that a portfolio can survive all of these minor blips, as well as a few major stutters for at least 30 years. If you understand that and you're still not happy with negative volatility (nobody complains about positive volatility) then you need a different asset allocation.

 

[Gone4Good]

Clearly folks on both sides of the debate are pushing longstanding policy objectives,

Really?

Because if that were true, I'd expect to see the left using the deficit as a reason to push Cap & Trade because of the massive revenues that could be generated by auctioning off carbon credits. I'd expect them to be pushing single-payer health care to control costs. And, of course, higher marginal rates. If one were really radical, they could call for 100% of deficit reduction to come from increased revenue.

On the other side, I'd expect to see a push to lower marginal rates (even as the goal ostensibly is to reduce deficits), to privatize (our voucherize) medicare, to revoke the affordable care act, to turn medicaid over to the states. If one were really radical, they could call for 100% of deficit reduction to come from spending cuts.

 

[HFWR]

The key to happiness is low expectations...

I must be the happiest man in the [-]USA[/-] [-]world[/-] universe.

I'm about as conservatively invested as I've ever been, partly because I'm getting older, and partly because all this gloom and doom may be correct.

I think we've been living on borrowed [-]money[/-] time since the 70s. With deficit spending since forever, we've cut taxes too much, or spent too much, depending on your persective, and primed the pump artificially, in real estate and the financial industry, creating vaporwealth, that vanished in 2008-2009, or was that 2000-2001? We can probably grow our way out of it, but it won't be perty, nor quick. And it could very well go to ****...

 

[MichaelB]

Brewer, where did the colossal crash of 1973-74 come from?


Ha

Mostly OPEC

 

[MichaelB]

I think the pain from the losses in ’08 is still fresh and this is causing folks to fear another crash. Many of the problems being discussed are legitimate but that doesn’t mean they can’t be dealt with or that a major market decline is a likely outcome.

Confirmation bias is a major risk when the mood turns.

 

[nun]

I assume you are not retired with good income.Some of us retired people might be less sanguine about a possible major correction.

I'm not ERed, but the only thing I'll do differently when I stop wor*king is to increase the amount of cash I hold from 6 months expenses to 3 or 4 years.

My approach is to have a 50/50 AA in index funds, pay off debt....mortgage is almost gone and to use rental income for half my expenses. Other income comes from bonds and dividend paying stocks and eventually SS and a small pension. Having a few years in cash will allow me to ride out severe down turns

 

[Gone4Good]

If you understand that and you're still not happy with negative volatility (nobody complains about positive volatility) then you need a different asset allocation.

Or a pension.

 

[Nords]

Or a pension.

Or a SPIA.

 

[Gone4Good]

I think the pain from the losses in ’08 is still fresh and this is causing folks to fear another crash.

This is undoubtedly true, and compounded by the fact that this 'recovery' is anything but from most folks' perspective. By the measures most people care about - jobs, incomes, and home prices - we haven't recovered at all. The lone bright spots are stock prices and corporate profits. But even here, there is a pervasive feeling that market gains have been artificially manufactured via massive fiscal and monetary intervention. This is certainly fertile ground for the pessimists.

For my part, I'm a whole lot less optimistic than I was. Domestically, the forces of fiscal and monetary stimulus are spent. Fiscal policy is going to become a significant drag (1%+ of GPD) over the next year and a half. Any 'austerity' will add to that drag. I don't expect monetary policy to tighten any time soon, but that is the direction of the next move almost regardless of what happens on the ground. Meanwhile the private sector doesn't seem like it is ready to take over. Internationally, developing nations recognize they have an inflation problem and are starting to turn their attention to fighting that - which could spell trouble for global growth.

I don't expect the U.S. economy to fall into recession, but I do think we're poised for a continuing period of sub-par growth. I'm not sure how corporate profits continue to expand indefinitely under that scenario. But then again, I've been surprised at how well they've managed thus far.

I'm entirely happy with the more than doubling in price of things I bought two years ago. Now is not a time to be greedy.

 

[ziggy29]

Or a SPIA.

Unfortunately, the worst time to buy an SPIA is usually the same time as stocks are tumbling, as the "flight to quality" suppresses the interest rates and causes SPIAs to be very costly. For that reason the roll your own SPIA approach has its drawbacks compared to a traditional pension, where the risks are spread across all participants in all generations instead of making you at the mercy of your age and/or retirement date.

Someone cashing out 401K/IRA stock in 1999 and buying an SPIA did fabulously. Same in 2009, not so much. With a pension it really didn't much matter whether you retired in 1999 or 2009, all else being equal.

 

[samclem]

Because if that were true, I'd expect to see the left using the deficit as a reason to push Cap & Trade because of the massive revenues that could be generated by auctioning off carbon credits. I'd expect them to be pushing single-payer health care to control costs. And, of course, higher marginal rates. If one were really radical, they could call for 100% of deficit reduction to come from increased revenue.

Some folks might remember the tooth-and-claw fight for single payer, it was clearly a loser from the start but the fight continued. The scars will need to heal over and the new "reform" will need to fail before there's a window for attempting that again.
Carbon credit auctions as a means to raise taxes: Even the green ideologues are smart enough to shelve this plan for now.
So, where are the liberal bitter-enders taking a stand in the budget battle? It's clearest in the calls to "tax the wealthy" (the line for "wealthy" is conveniently adjustable). Or the refusal to discuss Medicare and other entitlement reform.

On the other side . . . If one were really radical, they could call for 100% of deficit reduction to come from spending cuts.

Those radicals at the CBO keep publishing projections like those contained in the Heritage chart below. This makes people believe that the level of planned future spending is way above historic norms and is what needs to be addressed. Then, those killjoys in Greece have to go and make such a mess of things. If the US just had a German big brother to give us a friendly lecture then bail us out when we spend a little too much, I guess we could stay on the present path. Europe is providing an ugly and inconvenient case study of the "benefits" of high taxation and government spending. "Nothing to see here, move along . . ."

 

[haha]

If the US just had a German big brother to give us a friendly lecture then bail us out when we spend a little too much, I guess we could stay on the present path. Europe is providing an ugly and inconvenient case study of the "benefits" of high taxation and government spending. "Nothing to see here, move along . . ."

If you worked for government, wouldn't you be able to find lots of reasons to go on spending and increase taxes?

I would!

Ha

 

[mexico]

I am in the housing market as both a buyer and a seller, and I am well aware of the mess. That said, we are finding our way toward the bottom as it is now noticeably cheaper to buy rather than rent in both the market where I am buying and the market where I am selling.

Perhaps we just have different expectations on jobs: I expect a long, slow recovery as is typical of what happens after a credit crash. I also expect ocasional blips and stalls along the way. The key to happiness is low expectations...

It's definitely a healthy thing for you, personally,that your "expectations" of the job market are positive and let's all hope that people get back to work, especially in the higher paying jobs.

I work with engineers in Mexico that make 22k/yr for US firms such as Intel and Continental Auto. Are those jobs coming back to the US at 100k per engineer? Not sure about that.

Here is an official web site that lists average engineering salaries in Mexico. Keep in mind, the figures are monthly but in pesos which is about 10:1

http://www.empleo.gob.mx/wb/BANEM/BANE_cuales_son_las_carreras_mejor_pagadas_


Expectations have a lot to do with the problem itself in that many Americans expected their houses to continuing going up in value, took equity loans, and now wondering what hit them.