The sky is falling.....

[Gumby]

Quote:

Originally Posted by M Paquette Nobody will even notice. We'll just slowly, quietly continue our transition to neofeudalism.

I would think Manorialism. This guy's got it all figured out.

World Made By Hand, by James Howard Kunstler -- a novel of America's post-oil future

[marko]

I'm slowly coming to the conclusion that nobody, anywhere, has a single clue on what they're talking about!

[MichaelB]

Quote:

Originally Posted by marko I'm slowly coming to the conclusion that nobody, anywhere, has a single clue on what they're talking about!

No no. Among all those people talking about all those things that can go wrong and giving advice, especially investment recommendations, one of them is dead right and knows exactly what he / she is talking about. Just one. If you can figure out who it is you and then take their advice you will be forever grateful.

OTOH, if you can't figure out who is right, it's like sitting at the poker table. You take a look around, and if you can't spot the sucker, it's you.

[NW-Bound]

I went to the link in the OP, and spent some time to watch the video, the same one FIREd discussed earlier about an "interview" with Wiedemer, the author of Aftershock.

It was a bit tough to watch this infomercial, same with all of them, and I was tempted to just quit. But I decided to tough it out to see what the message really was. Half-way through, I had a sense of déjà vu, and realized that I had seen a similar video before from the same source. I must have followed a link in an ealier and similar thread posted in this forum.

Basically, Wiedemer warns of higher inflation and interest rates. It would decimate house prices, and stocks. He said that eventually everything would recover, but a lot of people would get hurt.

So, what is for one to do? He says to sell your house, and get what you can. Buy gold because although it will build up to a bubble, the price run-up may last another 10 years. I did not see if he recommended selling all stocks or not, but he recommended some sensible things to me and most people on this forum. And that is to avoid long bonds, get out of debts particularly credit cards, and to convert from adjustable mortgage to fixed rate.

But if one sells his house now, is it to buy back later cheaper? Would not rent go up with inflation, which means that it is better to keep one's house, whether it is paid for or not? And in the early 80s, the last time we had high inflation and when I bought my 1st home with a 14% mortgage, house prices went up with inflation, not down.

Wiedemer said that there would not be social collapse and widespread unrest and chaos, the same as there was none during the Great Depression. But there will be a lot of misery.

It may all sound plausible, but about gold, I have to repeat a personal story that I have told often on this forum. In the early 90s, a close friend of mine read a book about the impending collapse of the US economy. He believed it fully, and cashed out his entire 401k, paid heavy taxes on it, and bought gold. Nowadays, he could have rolled out to an IRA, then bought a gold ETF, but this mechanism did not exist then.

He paid something like $500 or $600/oz. Of course we know what happened to gold price afterwards. He eventually had to bail and sold out at below $300. Now, gold has climbed back up to $1700.

My friend complained that he was "too early" in his prediction, and should not have sold. I did not have the heart to tell him that had he just kept his money in stocks, the stock price appreciation as well as dividends for 20 years would have been more than that gold price appreciation.

[NW-Bound]

I have set the record straight about the OP linked article never suggesting that widespread unrest and society collapse will accompany the hard time and high inflation ahead, which it does predict.

I felt that I needed to do that, because I took off with Audrey's comment about us living under a bridge, then so many joined in that the original article was not discussed and the thread's theme was subverted. Part of the reason was also the OP's choice of thread title, which conjured doomsday or Mad Max scenarios in the reader's mind.

But now that things have come to pass, and there has not been any further post, I'd like to add something that is out of topic.

Quote:

Originally Posted by ejman The whole societal collapse /conspiracy scenarios are fun to talk about but looking at recent history of world upheavals when countries were really faced with the end of everything as we know it scenarios (Japan, Germany, The old Soviet Union, even Vietnam etc) there really was no total societal collapse. After a while, people regrouped and things carried on and I'm optimistic that we as a nation wouldn't be any less (although I hope we don't get to test my optimism).

Yes, people instinctively know that they need to form some bonds with some other fellows, at least their temporary neighbors, in order to enhance their survival. In the Mad Max movie series and any other disaster movies, we always see the survivors organize themselves into a group, sometimes to face their adversaries which also form a band. This is quite plausible, and indeed happens in real life already in the form of neighborhood watch or vigilante groups to deal with thieves and gangs.

When it comes to the major upheavals like the ones you listed, it is different. In these great political disturbances or revolutions, an individual would not know how to plan or to protect himself, if that is even possible. Each of those was a unique situation, and no-one could really predict how history would unfold. There were so many factors at play, so many actors. I am thinking of events such as the French Revolution, the Russian Revolution, or the Holocaust. Yes, the nations did survive and the people did regroup. But for the individuals, survival was a hit or miss. How could one plan for events like that?

For example, one of my favorite movies is Dr. Zhivago. Another is The Killing Field. Both depict real history. The main character in the first movie is fictional, while he is real in the second movie. People in the US have not been through such a war, and with the US being an isolated country, there is no reason to fear such risk. However, put yourself in the place of the main characters of the above movies and you would feel the true helplessness of the individual, whose survival is as haphazard as a coin toss.

[ejman]

Quote:

Originally Posted by NW-Bound I have set the record straight about the OP linked article never suggesting that widespread unrest and society collapse will accompany the hard time and high inflation ahead, which it does predict. I felt that I needed to do that, because I took off with Audrey's comment about us living under a bridge, then so many joined in that the original article was not discussed and the thread's theme was subverted. Part of the reason was also the OP's choice of thread title, which conjured doomsday or Mad Max scenarios in the reader's mind. But now that things have come to pass, and there has not been any further post, I'd like to add something that is out of topic. Yes, people instinctively know that they need to form some bonds with some other fellows, at least their temporary neighbors, in order to enhance their survival. In the Mad Max movie series and any other disaster movies, we always see the survivors organize themselves into a group, sometimes to face their adversaries which also form a band. This is quite plausible, and indeed happens in real life already in the form of neighborhood watch or vigilante groups to deal with thieves and gangs. When it comes to the major upheavals like the ones you listed, it is different. In these great political disturbances or revolutions, an individual would not know how to plan or to protect himself, if that is even possible. Each of those was a unique situation, and no-one could really predict how history would unfold. There were so many factors at play, so many actors. I am thinking of events such as the French Revolution, the Russian Revolution, or the Holocaust. Yes, the nations did survive and the people did regroup. But for the individuals, survival was a hit or miss. How could one plan for events like that? For example, one of my favorite movies is Dr. Zhivago. Another is The Killing Field. Both depict real history. The main character in the first movie is fictional, while he is real in the second movie. People in the US have not been through such a war, and with the US being an isolated country, there is no reason to fear such risk. However, put yourself in the place of the main characters of the above movies and you would feel the true helplessness of the individual, whose survival is as haphazard as a coin toss.

Although it is true that planning for such type of events on an individual basis is somewhat suspect ( As the old saying goes "man plans, God laughs") I would like to point out that each of us is the end result of countless generations of such miracles happening. For instance, I would guess that a lot of posters on this board can trace their ancestry to some European country or other. In the middle ages the black death wiped out close to 50% of the population in Europe. Whole towns completely disappeared with not a single survivor. But yet countries survived, cultures survived and we are here.

[teejayevans]

More bad news from Bill Gross:
PIMCO | Investment Outlook - Cult Figures

Quote:

Together then, a presumed 2% return for bonds and an historically low percentage nominal return for stocks – call it 4%, when combined in a diversified portfolio produce a nominal return of 3% and an expected inflation adjusted return near zero. The Siegel constant of 6.6% real appreciation, therefore, is an historical freak, a mutation likely never to be seen again as far as we mortals are concerned.

[F-One]

Bill Gross makes one incorrect assumption per Brad Delong:

Quote:

Bill Gross implicitly makes three assumptions: (i) that the total stock and bond valuations in the economy add up to the economy's private corporate capital stock, (ii) that the capital stock of the economy cannot grow much faster than real GDP (currently projected to grow at between 2.5%/year and 3.0%/year), and (iii) that all transfers from corporations to savers--dividends and share backs and bond interest and principal payments--are reinvested in the market. If those three assumptions are true, then indeed the weighted average of stock and bond returns must be in the 2.5-3.0%/year range. But assumption (iii) is wrong. When a company pays me money by buying back a share, I do not have to reinvest that money in the market. When a company pays me money by issuing a dividend, it does not have to raise that money from the market by selling a new stock or bond--it can (and does) raise that money from its customers by selling them goods and services at more than their cost of production. And if (iii) fails, then there is no necessary direct arithmetic connection between the rate of return on stocks and bonds and the growth rate of the economy. So what is the right forecast of long-run future stock returns? The S&P earnings yield is currently 7.7%. If the economy strengthens wages will rise and that would tend to push earnings yields down, but if the economy strengthens businesses will be able to take greater advantage of economies of scale and that would tend to push earnings yields up. I have seen no arguments that one factor is likely to be much stronger than the other. That 7.7% earnings yield means that every year, after repairing worn-out capital, businesses have $7.70 for every $100 of stock market valuation adding to their physical capital stocks (which should boost fundamental value and so show up as a capital gain) or paying out via dividends and stock buy-backs. The right stock return to forecast is to mark that 7.7% earnings yield down to whatever you think the sustainable profits of American companies are, and to go with that.

[FIRE'd@51]

The most egregious error in Gross' commentary is a complete misunderstanding (or ignorance of) the Gordon-Shapiro model.

Real Return = Dividend Yield + Real Growth

Gross has ignored the starting dividend yield which was in the 3-4% range at the beginning of the historical period he referenced. Add to that a real growth of 3.5% and you get a real return of 6.5% - 7%.

He may well be correct that the real growth going forward will be less than 3.5% and since the current dividend yield of the S&P 500 is about 2%, the expected real return going forward is likely considerably lower than the historical 6.6%.

Nonetheless, all of his rantings about Ponzi schemes and investors skimming only make him look stupid. It's incredible to me that one of the equity guys at PIMCO didn't point out this oversight to him.

[marko]

Yeah, that Bill Gross...what a dumbbell.

[brewer12345]

Quote:

Originally Posted by FIRE'd@51 It's incredible to me that one of the equity guys at PIMCO didn't point out this oversight to him.

Its amazing, but on a daily basis I somehow manage not to tell the head of my employer that they are saying or doing something idiotic.

[FUEGO]

Quote:

Originally Posted by brewer12345 Its amazing, but on a daily basis I somehow manage not to tell the head of my employer that they are saying or doing something idiotic.

I have learned it is ok to call them an idiot, just don't say it to their face. They usually don't like it.

[brewer12345]

Quote:

Originally Posted by FUEGO I have learned it is ok to call them an idiot, just don't say it to their face. They usually don't like it.

I have taken to referring to the supreme grand poohbah by a young children's cartoon character. Wonder how long it will take for that to get me in trouble?

[73ss454]

Quote:

Originally Posted by FUEGO I have learned it is ok to call them an idiot, just don't say it to their face. They usually don't like it.

Hmmmm, I guess that's why I was always in trouble at work.

[NW-Bound]

We often talk about how the economies of developed countries have maxed out, and the growth looking forward will not be so good. Japan has been mired for a couple of decades, and Europe is in trouble.

They say the demographic conditions of the US look better than other countries with low birth rates and xenophobic anti-immigration policies, etc... Still Americans are getting older, and with more people idling, would that not slow down growth? And with slower productivity growth, would that mean the economy will have problems supporting the increasing number of people who are idle, e.g. the retirees? It is not just the matter of fewer workers compared to retirees, but also the higher cost of production due to more scarce raw material, fuel, energy sources, etc...

Would the above negative factors mean that we, as retirees who live off our capital assets, would have no choice but to consume less? Would this reduction in our living standard come either in the form of reduced stock dividends, bond yields, higher inflation, or all of the above? Call me a pessimist but I really wonder.

[teejayevans]

Quote:

Originally Posted by FUEGO I have learned it is ok to call them an idiot, just don't say it to their face. They usually don't like it.

When exactly do they like it?

I doubt very much Bill asked anybody to review it...at his level with I sure an ego to match, I doubt very much he answers to anybody. I do recall he made a big bet a few years ago and lost and had to do a mea culpa, and that was with his bond fund. He may have just gotten lucky starting his career at the start of the 30 year bond rally.
TJ

[traineeinvestor]

Quote:

Originally Posted by teejayevans When exactly do they like it?

When they are looking for an excuse to fire someone.....