Too Much Savings

[boont]

Looks like the market that is going to drop is the Stock Market rather than the Housing Market. Business is not investing.


"Greenspan noted that most American homeowners have considerable equity built up in their homes, so that it would take a substantial crash in prices to trigger a significant rise in foreclosures.

The bigger worry for policymakers is the global savings glut and its evil twin, the dearth of investment.

Contrary to supply-side theory, a huge infusion of cash into U.S. corporations in the past few years has not led to a large increase in investment. It appears that it was not high taxes that restrained investment in the future, but executives' uncertainty about the prospects for a decent rate of return.

The same uncertainty holds true globally.

Oil producers are floating on cash, but have not stepped up investments in their domestic industries. China and Japan are saving, but the savings are going into U.S. Treasurys, not factories and schools. Investment in Europe is "tepid," in the chairman's words.

Global savings are being siphoned into U.S. real estate.

Overproduction is the specter haunting the world now. Greenspan doesn't know the answer, but at least he's asking the questions."

Rex Nutting is Washington bureau chief of MarketWatch.

 

[wabmester]

Looks like the market that is going to drop is the Stock Market rather than the Housing Market. Business is not investing.

I don't follow your logic. I assume businesses are not investing because they don't need to. Many of them are still recovering from all of the overcapacity they created a few years ago. Hording cash isn't a bad thing in those circumstances. They seem to have pretty good earnings growth because of it (or in spite of it, depending on your point of view).

 

[laurence]

I don't follow your logic. I assume businesses are not investing because they don't need to. Many of them are still recovering from all of the overcapacity they created a few years ago. Hording cash isn't a bad thing in those circumstances. They seem to have pretty good earnings growth because of it (or in spite of it, depending on your point of view).

Could the hoarding of cash lead to the increase in dividend yields? That would rock.

 

[Nords]

Looks like the market that is going to drop is the Stock Market rather than the Housing Market. Business is not investing.

I've been reading Nutting's complaints for two years, and today our stock portfolio hit an all-time high...

 

[Michael]

Global savings are being siphoned into U.S. real estate.

So maybe when real estate prices level off, more people will move over to stocks (after an adjustment period). These things move in cycles. In the mean time, stocks are doing quite well despite global savings being siphoned off into US real estate.

The over capacity issue will eventually work itself out in the time tested manner. Inefficient producers will shut down, leaving only the efficient ones standing.

 

[Mr._johngalt]

Could the hoarding of cash lead to the increase in dividend yields?  That would rock. 

Back when I was still running a MFG. company, General Dynamics was a customer (this was in the early 1990s). I recall the top management came under a lot of criticism (from shareholders) as they were sitting on a mountain of cash. I didn't know all the reasons (or if I did I forgot),
but I admired them for doing this. Hanging onto your cash unless it's
sitting there doing nothing (lazy money) is rarely a bad thing.

JG

 

[retire@40]

So maybe when real estate prices level off, more people will move over to stocks...

Exactly.  The masses move to where the going is good.  For the past 5 years, the going has been good with real estate while the stock market has been generally flat.

When the masses begin to see the stock market moving up in the next year, they will flock in to cause another swelling (or maybe even a bubble) there.  This should last 4 or 5 years.

Then, in reaction to the stock market swelling, the feds will raise interest rates to the point that people will move out of equities and into bonds and CDs causing the market to go down. This should last about 4 or 5 years.

Then there will be a recession, and the feds will start lowering rates again until they are so low, people will sell their bonds (at a profit), get out of CDs, and start looking back at real estate as an investment.

 

[boont]

By just about any measure, the past three years have produced one of the biggest cash gushers in the oil industry’s history. Since January of 2002, the price of crude has tripled, leaving oil producers awash in profits. During that period, the top 10 major public oil companies have sold some $1.5 trillion worth of crude, pocketing profits of more than $125 billion.

“This is the mother of all booms,” said Oppenheimer & Co. oil analyst Fadel Gheit. “They have so much profit, it’s almost an embarrassment of riches. They don’t know what to do with it.

By John W. Schoen
Senior Producer
MSNBC

 

[azanon]

I love reading that people think the market is going to crash. That's a bullish indicator for me.

 

[unclemick]

It would be nice if they gave some to their shareholders in the form of dividends - instead of the supid buying spree a lot of them went on - the last time oil prices shot up.

I have faith in management - stupidity will rule once again - unless of course - this time it's different.

Heh, heh, heh - sigh.

 

[Jay_Gatsby]

It would be nice if they gave some to their shareholders in the form of dividends - instead of the supid buying spree a lot of them went on - the last time oil prices shot up.

I have faith in management - stupidity will rule once again - unless of course - this time it's different.

Heh, heh, heh - sigh.

But if they paid out their cash hoards in the form of substantial dividends, there wouldn't be any money for executive bonuses. :

 

[sgeeeee]

Exactly.  The masses move to where the going is good.  For the past 5 years, the going has been good with real estate while the stock market has been generally flat.

When the masses begin to see the stock market moving up in the next year, they will flock in to cause another swelling (or maybe even a bubble) there.  This should last 4 or 5 years.

Then, in reaction to the stock market swelling, the feds will raise interest rates to the point that people will move out of equities and into bonds and CDs causing the market to go down.  This should last about 4 or 5 years.

Then there will be a recession, and the feds will start lowering rates again until they are so low, people will sell their bonds (at a profit), get out of CDs, and start looking back at real estate as an investment.

Sounds like a great argument for diversification and an asset allocation strategy. Which is why I like that strategy.

 

[boont]

"I love reading that people think the market is going to crash. That's a bullish indicator for me." Azanon

It already did crash in 2000 where have you been? I sold out at near the top and it still hasn't reach where I sold five years ago. So you've made a total of not much since then.

Buffett says he sees no opportunities in the market for the next ten years or so but you do. Good for you go ahead and invest. The world is awash with cash and they aren't investing but you are. Business is not investing but you are.

Every baby boomer who just inherited their parents house and cash are not putting it into the market but you are.

We know from 2000 that the market analysts are crooked and we know that the accounting firms are crooked. But you have faith.

Good luck.

 

[unclemick]

Yawn!

2000 - 2003 was a pimple on an elephant's butt - the usual minor market fluctuation.

Now a 5000 point drop in the DOW would be interesting - in which case I would be tempted to up the stock portion of my balanced index.

In the meantime - it's De Gaul and the Norwegian widow.

Cash held on the side waiting for a drop - is about the same amount I have saved to bet this year on the SAINTS making it to the Superbowl - not much.

Hope springs eternal.

Heh, heh, heh.

 

[boont]

"the usual minor market fluctuation"

You sound like a guy that lost quite a bit of money and is making excuses.

b.

 

[REWahoo]

You sound like a guy that lost quite a bit of money and is making excuses.

boont, you sound like a guy who wants to argue/pick a fight/troll. Don't think unclemick, Azanon, SG or any other regular poster here is going to go for your bait.

You might want to try some other fishing hole.

REW

 

[unclemick]

Nope

Not spending as much as we're making and the women are starting to bitch about it - "you're not getting are younger - you cheap bastard."

Trying to run up the score is a male hormone thing - even if the heavy lifter is balanced index - with Vanguard's computers rebalancing their little hearts out.

Watching the markets and doing absolutely nothing - just standing there has got us through the first almost 12 years of ER.

I do keep 15% side money in individual stocks - it's an incurable male hormone thing.

 

[boont]

I have been reading this site for several years. While it is true that I don't post much I don't see why you need to cast aspersions on me that don't apply. You act like this is your site and no one else should comment without your consent.

I posted a new idea about what has confounded Greenspan and most financial experts. Namely that long term rates are unaccountable low and that the markets have not been doing much for the last several years.

Current thinking is that the globe is awash with liquidity and yet business and individuals are not doing traditional investments with this liquidity. There are obvious implications for such a unique environment in regard to the financial markets. Exactly what these implications are we don't know yet. But I am suggesting to buy and hold stocks in this unusual time is possibly not the right course of action.

I am certainly not the only one to advance these cautions.

b.

 

[Cut-Throat]

But I am suggesting to buy and hold stocks in this unusual time is possibly not the right course of action.

boont,

To me, I thought the most unusual time in my lifetime was in 1966. I met Karla and we had a whopping good time in her parent's basement.

Your above statement is an absolute maybe!  - Hey! - Guess what? - Nobody knows what is going to happen! But whatever happens, I'm sure you will tell us 'That you told us so'.

I'm going to go out on a limb here and predict that "markets will fluctuate"

You can do whatever you want. You probably are not going to influence many here.

 

[unclemick]

Wellllll boont.

At least nobody has called you a bored 13 year girl posting from Missoula yet - but that was winter.

Rock up! Boont! Rock up! Football season is coming.

Anywise - the great benifit of hindsight being what is - dollar cost averaging in the no where market of 1966 - 1982 provided the foundation for our ER - didn't seem like a lot of fun at the time though.

To borrow from Cut - Throat - 'Recency' - gotta watch out for that recency - can lead a person into pole vaulting over rat turds.

Heh, heh, heh. Hang in there. Stick to your guns - if your method works for you.

 

[RockMiner]

But I am suggesting to buy and hold stocks in this unusual time is possibly not the right course of action.

Don't feel bad boont, buy and hold is nearly a religion among many of the posters here.  Though "nobody knows what is going to happen", some posters somehow seem to "know" that any other plan is folly...there's a logic problem in there somewhere, eh?   In any case, I'm pretty sure that dissent goes over better without the attitude...

 

[boont]

Just to further the discussion a little bit; the numbers I have read suggest that there are about 75 million so called "baby boomers" and the oldest of this group is now approaching sixty years of age. As they do this, they are starting to inherit their parents assets. Inflated value real estate and other long time invested capital. All told this has been said to be the largest transfer of wealth in human history.

One question is, what are these inheritors going to do with this money? The early returns, I suggest, indicate that they are not putting it in the equity markets. I know from my own case and from friends they are not. Of course my immediate knowledge is only anecdotal, however, it is born out in what I read. Thus my original post. Where is this money going and where will it go in the near future? Also, why is this money and the huge surplus of world-wide business cash not going into the equity markets or traditional investments? Why is China only buying bonds and hard assets?

Greenspan says it is a conundrum that he doesn't understand. Buffet says there are no decent returns that he can see except to buy companies outright.

In this light I can understand why a frightened investor might turn to real estate. It is self protection in the best case (well located all cash purchase) foolish in the worst case (nothing down-interest only mortgage). I can also understand a foreign investor trying to protect his American dollars (as they sink in value) by buying American real estate, even at inflated prices.

Something is going on and it is big, maybe huge and some attempt to understand it is going to be useful.

b.

 

[justin]

... [T]he markets have not been doing much for the last several years...

I think most sectors of the market have been doing very well the last 2-3 years. I had a hard time finding a Vanguard index fund that interested me that hadn't gone up a ton when I was shopping recently. If you're talking about 5 year returns, sure, lots of water-treading or slight negative movement, but recently, stocks have been doing well.

It is funny that you think the market is going to "crash". In the back of my mind, I'm concerned about overvalued stocks leading to slow stock price growth over the next 10 years or so. Stocks have gone up so much recently, that we could be near the end of the runup. I have the crash fears that you have. Of course the current runup may last another year or two or ten or 20% or 50% or 200%. Who knows. Bottom line, I'm continuing my dollar cost averaging plan regardless of "market indicators" and talking heads on tv, advice from wise posters on this board, market crashes, etc.

 

[preben]

Boont; first of all; your You sound like a guy that lost quite a bit of money and is making excuses. /sup] is the reason people don't take you serious. Any good argument will certainly be taken serious.
Then you quote some other people without any comment from yourself.
Then you mention than Greenspan's conundrum is about why increased liquidity does not mean more investments? I believe he used the word in connection with the strange lack of connection between long and short term bonds.

I will give you the benefit of the doubt but....

What is your investment strategy? What are you invested in today? What do you use to get in/out of the market as you did in 2000 so well? Are you retired and live of your investments? Please share a bit more - do not only bring doom-gloom theories but also some solutions (you did mention RE in your defense - anything else?).

As to the subject; over the last 5 years a well diversified portfolio have actually done just fine. The 2000 "crash" was an IT/US large cap "crash" only. The future might however see a more global crash and to have positions beyond the traditional stock/bonds might make very good sense. RE, commodities, precious metals(as a seperate from commodities) Etc.

Also it makes good sense to ensure that one is well diversified currency wise - in the good old days it was easy to stick with home country currencies, but with our more global world, many of our nessesities (not just champagne and German cars ) are made/paid elsewhere before we buy them.

There is also a risk that oil/other commodities might be priced in a basket of currencies in the future - seems to be the trend these days?

Cheers!