Why the glut of savings? Because the rich have too much money to know what to do with. When so-so lawyers make $2 million a year, there's only so many Chanel bags and Ferragamo shoes, or even second homes and islands, that you can buy. So they have to park the rest of the money in a bank.
BTW, could negative deposit interest in that situation be made to work like a wealth tax?
2
All real growth will take place in Asia and Africa for the foreseeable future. Population growth in Asia and Africa is increasing by 100 million a year for the next two decades - that equals hundreds of millions entering the new middle class. You want high growth rates? That's where you'll find it (you just need an appetite for a little risk).
Economic growth = unsustainable environmental exploitation and degradation
A focus on increased production, nations competing with nations = trading future generation's safety and survival for our own comfort
4
retired federal attorney F/71
" . . .some rumblings" about current markets? Way off focus.
"Capital owned by top 1%": While 40% of working Americans cannot beg, steal, or borrow $400 for an emergency, "the richest 1% of American families have doubled their real capital wealth in 20 years. *** The top 10% of families have 72% of all financial assets [86% of corporate equities and mutual funds and a record 88% ownership of noncorporate businesses [plus] 68% of the money in bank accounts."
"The top 1% has run out of investing ideas so they've parked $4.7 trillion in the bank." Top 1% do not spend. Hence, the collapse of the so-called middle class."
"If the poorest 50% pooled all their financial assets, [they could buy] all of the shares of Microsoft and Apple. If the top 1% pooled all their financial assets, they'd have enough to buy up all the shares of every corporation in America."
Trump? Nah. He's the puppet to Mitch's malign plan as puppeteer.
Mitch has finished his transformation of this country with the 2017 tax law and packing the federal judiciary with lifetime appointment of right wing ninnies.
I leave one-way for Zurich 2023. Now? Paying for kids to enroll in free German colleges and intern with former clients like Bayer and Siemens. Stay away from U.S. or us.
sources: Federal Reserve, BLS, Haver Analytics in marketwatch Oct 28 2019
6
I index, if it all goes to hell so does everyone else, let it ride.
The Dow will hit 50,000 eventually probably by 2035, after that Rome will be burning. The fall of Capitalism and life as we know it.
Pass on what you have saved to your children they are really going to need it.
3
@CDane
Yeah, Buffett always asserts the average investor should buy a low-expense S&P index fund and just therefore bet on the health of the US economy. Dollar-cost averaging, especially in down markets, can maximize your profits as it allows you to buy more stock during that investing period.
3
"carpe diem" is today's mentality.......
Future generation will curse us living today for the total financial mess we bequeath them.....
4
Yep! Looks good on paper as our stocks reach higher and higher ground and the dividends increase as well. But...they are way over priced and based on a false economy. Sorry. I trust Trump as far as I can throw a 500 pound weight. His whole life is based on lies and falsehoods.
I fully expect a national depression the likes of Hoover in the 1930's. Batten down the hatches as this is no time to be reckless with one's money. Get ready for a bad, a very bad economy within the next year or two. The Republicans have sold out our economy to the corporate war machine with little regard to the consequences of climate change. There's no doubt in my mind that our homeless population will triple over the next few years. Good luck with Trump and his crooked administration.
5
@David Michael You sound like someone who has been in every comment thread about the stock market since 2009.
If you're so sure of yourself, you are free to take a short position everywhere.
4
Trump's trade wars has many industries choosing to buy machines here, instead of risking investment in supply chains located in China. Manufacturers of machines are a bit happy. I guess this is good for a while. There is plenty of good news in chemical, pharma, cannabis, maybe even renewable fuels.
If American firms robotize, innovate rapidly, this will be all good. But what happens when machines become more expensive next year because of the demand? Costs are likely to escalate. Not sure we have skilled labor that we will need either - further pressuring wage growth. That usually means inflation - something which was tamed for a while because China was a giant factory producing as much goods as we wanted, with as much low paid skilled labor we needed, to soak up the dollars we are printing.
Shifts in supply chains, even minor ones, will escalate down the pike and produce great turbulence in demand and supply in any sector that has ties to China.
Ergo, maybe after 20 years of predicting inflation, economists will finally find evidence of inflation starting next year. Is what I am concerned about.
2
@Kalidan If companies will again invest in their potential employees by offering in-house training specific to their needs, like they used to pre-2000s, and be proactive about working with local vocational-technical schools and community colleges to provide the skills they need, I posit you will have more than enough skilled labor. This has been the elephant in the room for the past two decades.
6
@Truth at Last
This 'vocational school' option has invited discussion for at least the 30 years I have been engaged in higher ed. People unfailingly point to the German system of education to support their argument for alternative tracks (a stark departure from the minimum-60 credit hours of liberal arts in a 120 credit hour undergraduate degree that is standard). If industry-ed partnerships had wide merit, independent businesses would have hired kids out of school, worked in partnerships, and produced a highly qualified workforce already. That has not happened to the extent imagined. Similarly, for-profit schools have largely failed; online-only model is still in development. I.e., issues of producing qualified workforce seem more complex than I can fathom. I am also a bit leery, nay suspicious of emulating a German socio-economic model for anything. Second, I have a sneaky suspicion that businesses will choose the other route; i.e., invest in automation, robotics etc. to bypass low and mid-skill levels - putting both blue and white collar (say accountants, radiologists) at risk. This is a longish way of saying that I don't think companies will invest again in their potential employees - if they ever did at one time past.
2
@Kalidan I know they did - I bought the teacher consultants for white-collar, corporate in-house courses. There have also been some success stories in training for blue-collar jobs. It's interesting that you brought up the German model, though I was not referring to it. Major corporations used to have entire in-house training organizations, for both white and blue collar jobs (e.g. the Bell System). However I do think that unless government provides some financial incentive, e.g. credits with teeth in them - you retain the trained employee unless you can prove they're a total failure, then you're correct and they'll bypass potential employees. Tell you this though: if government or business does not step up to the plate to help employ folks at decent paying jobs, there Will be a revolution in this country and it will be messy. Because Higher educated (e.g. 4+ years) people are and have always been a Minority of the available working population and will remain so do to the cost, etc.; it has become a luxury. And most jobs only really need specific skills training, not an MBA or even BA, because most people do not aspire to the C suite - businesses demand this only because they can - until the revolt comes.
6
Without commenting on the content of the article, I just hope that it doesn't discourage people from investing. I'm now 65 and retiring in a few months. I don't have enough money to live at all well. It's mostly my own fault, so let me draw on my own folly to provide some advice, especially, but by no means limited to, young people.
1. Save money. Any money. Start small if that's all you can do. Forego one coffee a week and put $25 in the bank at the end of the month. The important thing is getting into the habit of saving money.
2. Delay gratification. Don't buy so much stuff. You don't need every new iPhone, or that 23rd sweater, or a new car. Reducing consumption is also one of the best ways to address climate change (the effects of which will increase our cost of living).
3. Don't try to predict the market. You aren't that smart. Almost nobody is.
4. In the early years you can tolerate higher risk, but that doesn't mean you should throw money at every shiny start up that comes along. Get some basic financial advice, preferably not from a broker who only wants to earn commissions. (Yes, there are some who do want to see you make money. Ask your friends or parents.)
5. Take a very long view. Assume you're going to live a long time. In your lifetime, the market will go up, almost certainly.
6. Don't touch your investments except in emergencies, which hopefully will never happen.
7. When you get your account statements you can justifiably feel smug.
5
@Stevenz All I've got to say is, Amen. I preach these same tenets to all who will listen; sadly, most don't. I'm living proof that routinely forgoing "stuff," e.g., daily lattes, buying breakfast and lunch on a daily basis, a new phone every time one comes on the market, taking shorter vacations, etc., all add up in the long run. I retired at 61, live comfortably within my means, and travel the world. I'm by no means wealthy, but invested the low-cost, long term, you know, the boring way, and at this point in my life I find myself financially secure and sleep well at night. It can be done, particularly if you start early, educate yourself in basic investing, and, as you say, delay gratification.
2
All asset classes are increasingly being held by people who have no need for money and no need to sell. With the cost of money near zero, there is no real "cost" to keeping a non-performing investment. The cost of money is near zero due to low central bank interest rates and "quantitative easing" which buys bonds that would otherwise be dumped on the market.
It's simply the fastest way to transfer wealth to the wealthy few now from the many poor now and in the future.
Further, the emergence of larger players has minimized the volatility of the stock market; the markets instead follow the guiding moves of the larger players -- who buy overtly and sell covertly.
Not surprisingly, this consistency increases the participation of the retail investors, who will be left holding the bag when the larger players exit.
Once we run out of funds for quantitative easing, the Chinese, Saudi, Russian, and all other investors will dump US government bonds (after trading US stock for Chinese stock), our interest costs will surpass our government debt, and the US will be bankrupt.
Then the totalitarians will have their permanent lock on the world economy.
11
Neil’s observations seem at odds with what I see on the ground. Biotech and pharma are doing great not because of high drug prices but because of a huge wave of innovation that has started to hit the markets, and will continue for the next 5 years or so at least. VC investment in new biotech is very large right now. Chemical manufacturing worldwide is benefiting as a result. I personally am contacted by recruiters every 3-4 months asking me to switch jobs - and not for some lower-paying one, but for a comparable one. I have friends that are having similar experiences in other industries. Is my circle the exception to the rule?
Another point- the president is not the economy. We need to look at the whole picture before saying something is out of whack...
8
@J , Big picture shows economy growing at 2% and stock market
up by 25%. The disconnect is
obvious. It is a reminder of 2006/7
when real estate prices shot up
high and then came the bust.
Same may happen to stock market.
With the slow economy, earnings
will also be low, pushing up p/e ratio. There may be sudden
realization that stock prices are
unjustifiably high. The market may
plunge. Hedge funds are getting lot
of money from the wealthy,pension
plans like 401k/b, university endowment funds have lot of money pouring into stock market with the pressure on investment managers to earn high returns. They are looking all over the world, speculating to get the
return to satisfy the investors.
This can't go on.
2
There is a widely believed myth about Wall Street and the stock market that holds that it values stability and predictability in the nation’s political affairs above chaos and confusion.
In actuality, investors ordinarily favor chaos and confusion because they like the idea that there is no steady hand at the till of government preventing businesses from doing anything and everything they want to do..
When Trump came along, businesses and well-to-do people saw a con- artist who would give them lower taxes; was promising to spend lavishly on the military and the infrastructure; had no interest in controlling budget deficits; would cast a cold eye on the need for health and safety measures in the workplace; and would ignore the effects of climate change.
And they liked what they saw and rewarded him with political support and financial contributions; and themselves with a stock market boom.
But that was then, and this is now.
Chaos, confusion and pandemonium aren’t everything they are cracked up to be.
Bad news for Trump and his stock market will be coming soon.
20
I guess that I just don't
t understand economics. Or rather Economics.
Economics presupposes that the Economy will always expand, like the universe. It can not comprehend a society such as once was where everyone had a job, did their jobs and carried on.
I would suggest that society will return to a similar model but in a more modern way. Our farmers, a very tiny frction of our American population, easily produce all of the food that we need. And then some. With the increasing use of solar energy, it doesn't appear that there are really very many jobs that need to be performed. Most people work at what are really "make work" jobs.
Computers ill soon be able to perform almost all necessary work and deliver the food to our tables. People will be free to learn or attend the circuses. How, then do we assign a economic values?
11
@Eugene
The myth is that computers or robots will free people to pursue a life of leisure without the curse of work. But exactly how will Royal Caribbean pay for the $1 billion ships that all those non-workers cruise on? This life of leisure utopia has been predicted for decades, and we seem to only get farther from it, not nearer. The conservative economic philosophy that prevails will simply never allow the kind of distribution of income that would be necessary for that kind of lifestyle, and will continue to pursue as wide an income inequality gap as they can.
3
@Eugene
1. There are people higher and lower in the economy. Those lower want to increase their income, wealth, and well-being. That requires a growing economy, unless you want to go down the dangerous zero-sum route of expropriating it from the higher income population.
2. People tend to want a bigger TV, latest gadget, whatever. Even before the age of non-stop advertising and commercialism, people want at least a little more. A static, perfect equilibirum economy would not accommodate that.
Trump has been great for the economy.
Why can't the left just admit that?
2
@ABC123 Contrary to popular belief, Presidents only affect the economy at the margin. I therefore conclude that it’s the economy that has been very good to Trump.
69
@ABC123 even if that is true, he's been an abject disaster on every other front. My thinking is his tax relief for the rich is still playing out. Meanwhile the national deficit is soaring.
3
@ABC123
If that's the case, he inherited a great economy from President Barack Obama, who pulled us -- and, by extension, the world -- back from the financial brink.
Why can't the right acknowledge that?
In fact, presidents are just one influence on the economy and the markets. -- thegamesmenplay.com
5
Prescient, or seemingly prescient, comments about the future direction of the economy, even if they sound knowledgeable, are likely to be discounted by events in the real world. Consider how many “bright boys,” self-proclaimed, of course, failed to sniff out the crash-bang of the housing market, and its disastrous effects for the economy, ten or more years ago, and still today, ala Ben Stein, go on wither prognostications as if the wrong calls never happened. Best advice, keep a bundle stashed under your pillow.
4
Referenced is "the Trump administration’s de-escalation of the trade war with China"
There has been no de-escalation. There have only been short term postponements - like the temporary lifting of the Huawei ban.
Even the expectation-reducing "Phase one" talk of the alleged trade deal has thus far been all chatter.
Anyone who has dealt with Donald Trump will tell you there will be no trade deal. He likes to "win" and Xi will not allow that because he knows that Trump views everything as transactional and zero-sum. Also, his chosen negotiators, Navarro, Kudlow et al are woefully lacking in knowledge and skills. Just check out what Kudlow was saying about the global financial crisis while it was happening. Spoiler, he said it wasn't happening.
Lastly, it will take serious effort by serious people to dismantle the unfair trade structures that were built over decades. Trump and his clowns are not serious. They are only good at undoing everything Obama did that they hate.
35
Climate change brings about a new economic era. Business As Usual is over, carbon tax or no tax. Of course this will make for glum expectations. The way to deal with it is to have bold ideas:
o Recognize that late stage capitalism has to end
o Get a carbon tax, fast
o Tie economic growth to environmental purity. Create a mechanism to add natural land, for example, for each unit of econ growth.
o Do the same for social systems.
That's what it takes. The old economics is over. Look at the shocks to our econ system:
o The 1929 depression - fueled by bubble speculation
o The 1980’s “gluttony is good” and the beginning of the end of the middle class.
o The 1990’s end of mechanical industry - the value in most devices now comes in the software
o The 2005’s “rightsizing” shock that left rust belt cities in taters.
o The 2007’s banking collapse
o The 2016’s big data / big cyber fraud - Cambridge Analytics
o The 2019’s realization that we are destroying the world thru economics.
This is gonna take some major rework, and will challenge every sector of our economics and culture. Yup, it might be grim for a decade or so.
25
I confess my eyes glazed over about halfway through this
tortuous reasoning. I offer a simpler explanation for market
buoyancy. The American market looks good to foreign investors impressed by our nation's resilience in spite of a bizarre political circus. Or as economist Simon Johnson has said, compared to America, "the rest of the world is consistently more messed up, today and probably forever."
8
@Charles Packer Laughing here. About 1/2 through I though "Am I understanding this?" I find your explanation, like several others, to be straightforward and reasonable. That might not make it right, but it's a sensible place to start.
I also like "they print lots of new money, corporations borrow it for a song, then buy back their shares -- driving up prices." When the value of the money goes down, the prices go up. Is there much more to understand?
10
I hate to admit it Neil, but “ my” portfolio is not doing well, as a matter of fact “ my” portfolio has ceased to exist along with millions of others who did not have the money to gamble and lose in the market of the last ten years: a market I might add that owes its exuberance solely to the feds willingness to keep everyone’s spare change fully invested in stocks or if you play it safe you watch it wither away eaten up by the inflation that you and others who call themselves economists or savants of economics deny. Inflation that only exists for the rank and file who must pay rent, insurance, premiums on your terrific healthcare plan than is falsely Lainey to be so loved by Americans and then of course if you’re unlucky enough to be in the generation trying to get an education you are really confronted with inflation as you compete with international students with deep pockets thanks to the willingness of their fellow Americans to offshore good jobs and throw workers under a bus. Sorry Neil, most of us no longer have a portfolio to agonize over, but enjoy your turkey anyway and remember what a great country this once was for all Americans not just the 10% with all the money.
32
@Ted
Exactly. Neil, you are preaching to the 10% club. As a teacher, I will give you a real dose of reality: When I started teaching 24 years ago, we had a free and reduced lunch program on the Southside of Minneapolis. Now we have free and reduced breakfast as well as free snacks. Some schools have 99% percent participation. My school went from fairly low numbers around15% to now about 80%. The parents are now working two and three jobs each just to keep their heads above water and the safety nets of the past have been quietly eroding for years under various administrations for years. Clinton did some real damage despite liberal denials. Trump is working hard as I write this to increase even more cruel restrictions. I watch the market daily, Neil, as I have a small deferred comp and a modest pension (and I put in the maximum). I am not experiencing the gains you speak of, nor what Agent Orange blathers about ad nauseum. I love how he sells rugged individualism to the poor all the while giving insane tax cuts to the wealthy. It's crazymaking at its finest. Something's gotta give. Some of the NY Times staff need a freaking dose of reality.
46
Whenever I try to wrap my brain around one set of variables, another pops up and disturbs my model.
Low unemployment but not many jobs good enough to buy housing, at least in the places where the jobs are.
The gray wave, currently breaking offshore, but due to hit the beach soon.
The movement of money to the top of the economic food chain is accelerating, and that money is buying up all the assets that everyday people need to live. Water rights, anyone?
Is inflation really necessary? It is a subsidy for speculators, but it is a burden for the rest of us, unless our assets appreciate faster than it does. What does the economy look like if prices remain essentially flat?
I'm just staying as diversified as I can, with most of my assets in conservative instruments. I also keep a couple of 'failover' investments so that if it all goes kablooey, I don't have to start with nothing.
19
@mlbex
Inflation is really necessary to encourage investment by diluting the cost of repayment, as given in Modern Monetary Theory.
2
"The risk is not that one asset ends up being a bubble, but that all of them are."
Yep. Stocks/bonds, cash/gold, potentially all overvalued, and no safe have to bail from one to any of the others...
21
@APS : If everything is overvalued, what does the concept of value really mean?
14
Nation state military power is the only guarantee that a bill holds value (the bill will be paid). All instruments measured in fiat currency are based off the military might of the respective issuing nation.
3
@mlbex Sometimes I think the best measure of value would be work-hours, but different people are productive at various rates. So,
Plan B:
Maybe the best arbiter of value should be the kilowatt hour. The cost of that varies around the world too, but in a few years that might not be the case. By pegging our money to the KWH, we're acknowledging that a certain amount of effort has already been spent, and that it can be cashed in later for a similar amount of effort in return.
1
Michael-in-Vegas said "A better way to look at the market is to compare peaks of recent years: We're currently up ~6% from 2018's peak, and ~7.5% from 2017's peak."
He is of course so right -- but our natural reaction to a market like 2019 is relief and forgetting [2018]. "Wow look how much I made this year!" We humans embrace denial when we can.
As an older investor I am not letting myself slip into a state of euphoria. I have never had so much cash sitting on the sidelines. Trump makes me crazy.
70
99 percent of today's markets are run by computer programs running algorithms based on historical price movements. Writing that "investors" do this or that is gibberish.
Secondly, Africa appears to have (finally) turned a corner and is poised to grow. African governments are finally realizing that having natural resources is not enough. Using local natural resources as inputs for manufacturing and selling products to the world (as happened in the U.S. in the nineteenth century) is the path to future.
8
A lot of whining going on here. The economy is rocking! As the author points out- just look at your 401k. Unemployment is at all time record lows. Think about that. Anyone who wants a job can have one and people who want a better job can move up. Interest rates on consumer debt are very low - go buy a new car for zero percent! These are good times indeed. So stop whining, keep working hard, save and in the end you will be in a good place.
9
What does the job pay and where is it located. Big deal I can buy a new car I could always do that.
11
@Steve D The lowest interest rate I can get on a car loan is 3%, and I have good credit. Close relatives recently paid over 7%, and they're working 4 of those jobs you cite to pay for it. The economy does not seem to be what you think it is to me.
16
@Steve D : Your use of the phrase "whining" is an ad homenim attack that lowers the credibility of the people making statements instead of refuting the statements themselves.
I see a lot of legitimate worry about where things are going, and not very much "oh woe is me" type comments.
I myself (and I suspect many others here) are doing rather well, but we are concerned about the bigger picture, which faces many challenges that could wreck it. If you're not at least a little worried, you're not paying attention. And you have a right to express that worry, as many are doing here, without being categorized as a whiner.
35
The 10-year treasury "peaked" at around 3.25% in Nov. 2018 and began Dec. 2018 at 2.99%. Shortly thereafter Jerome Powell gave a speech indicating the Fed planned on three more 1/4 point rate hikes in 2019. The Fed raised its rate by another 1/4 point in Dec. 2018, the ninth quarter point increase by the Fed in a three-year period, the slowest pace of Fed increases in modern times.
There was little talk of a "global" slowdown then, but Wall St. dramatically sold off last Dec. in the wake of Powell's comments. It was the worst Dec. sell-off since the 1930s. Huge sums were reinvested in the treasury bond market, bringing the 10-year down past 2%, thus "inverting" the yield curve and hence the call for Fed rate decreases as opposed to what Powell was saying just a month earlier.
Powell raised the white flag on Jan. 3, giving the green light to another year of speculation as the Fed cut rates three times to placate Wall St which couldn't abide short term-interest rates of barely 2.25% or a 10-year treasury of 3%.
Wall St. got what it wanted...further inflating the bubble and once more destroying the faith prudent savers and the elderly had in some semblance of return.
32
Markets were down considerably in 2018, so my portfolio in 2019 basically has gained back what was lost and not much more.
40
The underlying decay in economic growth is the elephant in the room. Within the U.S., investors are doing quite well but non-investors are not. Wages are stagnant, and slow growth portends low growth in employment for the foreseeable future.
Something has to give. If the 75% of our economy represent by consumer spending stalls, investors will eventually feel the pinch. What will be the tipping point? Out-of-control government debt? Some international shock, like trade tensions? And when will it happen?
23
Warren Buffett said it over a year ago - "As long as interest rates are this low, stocks are a bargain".
10
Yes, my stocks are absurdly overpriced by normal standards. My utilities are at 15 to 20 times earnings, paying 3-4%. My REITS are at about 15 times FFO, and are paying in the 4-6% range. Drug stocks, tobacco stocks, oil stocks, manufacturing stocks - all much too high for what they are.
So I am just banking my dividends and waiting. Sooner or later, another opportunity will come along. I only buy when stocks are absurdly underpriced, and it will happen again, sooner or later.
16
Debt both corporate, personal and government at all time highs, the stock market artificially buoyed by stock buy backs from the tax cuts and QE4 have created a phantom economy. The rich party on, the middle class struggles to keep its head above water and the poor drown. When the party is over with little means for fiscal intervention it will be a disaster most probably ending in violent upheaval. French revolution anyone?
34
@john kelley
It was the best of times, it was the worst of times.
8
"The stock market has been surging ever since a late-summer recession scare, and was up 25 percent for the year at Tuesday’s close."
This is a highly deceptive metric, given that there was a severe market drop at the end of last year. I'm disappointed that the NYTimes would even print it.
A better way to look at the market is to compare peaks of recent years: We're currently up ~6% from 2018's peak, and ~7.5% from 2017's peak.
This is hardly a market on fire. In fact, it's not that far off from the relative stagnancy of the global markets.
Meanwhile, most of the growth we've seen is in very specific sectors, implying to me that there's plenty of room to move across the broader market.
It's likely that the years of 20%+ gains are over, but there's no reason to expect losses, or really anything other than business as usual.
41
neil let fall to his column inch limit the paragraph he wrote to point out that sluggish economic growth, whatever else it may bring, also slows growth in carbon energy consumption, which is a benefit to our imperative to address climate change.
i'm glad you wrote it, neil, as a responsible and holistic economic guru -- i'm sorry that space required you to cut it out.
because all economists know that wealth generation requires population increase, and population increase -- well, i won't chalk out all the dots, but more carbon must be burned, sir, more carbon in the air!
businesses are worried: can we really reach 10 billion wallets? we might not even make it to 9.
with strong boxes full of lucre, and little growth in wallets or share, profit starved corporations might seek better returns through efficiencies, and invest all that capital not in expansion but in modernized and energy efficient infrastructure.
ha ha, i was dreaming there! where's 5G when you need it? -- and do you need it?
joseph tainter explained it: it's possible to make things so complicated that they just don't work anymore. the more things become complex, the more complexity is used as a remedy. it's just your complexity necktie ... in a complexity wringer.
it's like the sick old man who asked the gerontologist, "what's the matter with me?" and the gerontologist said: "everything."
remember, too, that the eventual cure for "secular stagnation," as alvin hansen first analyzed it, was a world war.
14
@drollere: Yep. We got out of the depression by fighting WW2, and we've been on a war footing ever since. Dial down the war machine and the depression will come roaring back.
The world has more capacity than it can possibly need. It has since 1928, and it's worse now.
7
Good luck collecting all that debt from a dead society. What will they repossess? What they already have? Or your life?
12
Let's not forget "privatize the gains and socialize the losses". Who expects otherwise? Something has to break... As the climate dominance asserts itself even more dramatically, will it be the oil/gas portfolio, the insurance portfolio, the agricultural portfolio or some other big segments of the economy that rocks the foundation? Only the talking heads purport to know, not!
16
It's supply and demand. Basic economics.
The supply of liquid investment assets, mainly stocks and bonds, has not kept pace with the growth of savings worldwide. Wealthy and even middle class people, around the globe, are looking for a place to invest their savings. When demand exceeds supply, prices go up.
15
The stock markets rise is unsustainable. Corporate dividends and buybacks now exceed free cash flow at many companies, and there are signs that this may have peaked. Companies cannot continue to spend more than they earn forever. Forward EPS is declining and may have already turned negative, and an earnings recession may already be unfolding. Earnings going into Q1/2020 are forecasted to be lower. Bear in mind, an earnings-based recession can be just as bad as a GDP-based recession for equities.
In addition, the last two times the US yield curve inverted was in 2000 and 2007. As the curve went from inversion back towards steepening, the stock market was peaking (or already peaked), and a recession was about to start. Yields are currently rising again. While an inverted yield curve does not cause a recession, when yields begin to rise again it can cause equities to be re-priced to the downside. The wild card for equity markets this time around is the fact that the Fed is trying to front run recession risk though the Repo market.
Writing that the stock market has produced double-digit returns makes for a nice headline, but the fact is that most investors have not seen those kind of returns in their portfolios. The only way that this would be true is if you were skillful enough to sell everything last November and then bought back in on January 1. Most investors did not do that. Only a small handful of professional traders pulled off timing the market that perfectly.
41
@Lionel Tepper
retired attorney F/71
Spot on except for that last sentence. Gamblers, not "a small handful of professional traders," engage in that kind of short-term trades.
Me? I manage money for three generations of four families and my own savings/IRAs. Mostly teachers. December 16 I decided that my rule number 1, keep principal safe, required the sale of most equities. Cash went in TIP (now up over 6%). Not sold: utilities paying 3% plus dividends + preferred shares + laddered bonds bought 2008 and 2009 and maturing 2018 to 2021 and two companies leading genetic testing for physicians.
Following rule number 2 from Peter Lynch: know what you own and why you own it.
In my stand alone comment here, I've laid out reasons why the U.S. markets are in trouble. On top of Jeremy Grantham and El-Erian and Bernanke showing why our 100 years of 6% total returns likely is headed toward 2% for decades.
When the top 1% of capital owners is parking $4.7 trillion in bank accounts. Do. Not. Spend. The so-called middle class is decimated.
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@Lionel Tepper Kudos Lionel. You have been paying attention. Well stated.
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As I understand it, the main driver for this is inequality. Rich people have more money than they know what to do with, so they just put it in stocks, and art, and luxury yachts, and other expensive and impractical stuff.
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@noname There aren't enough rich people to drive results of this magnitude. Much of the move is middle-class and upper-middle people looking for a place to put their money, as well as pension funds, institutions and plain old retirement accounts searching for a rise.
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@Boomer There aren't many rich people, but they hold most of the wealth, along with sovereign investment funds. That money has to be put to work buying things people need like school and hospitals and water systems, but instead it is being invested, which helps hold up the stock market.
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The Upshot's Neil Irwin claims that "your portfolio is probably doing great," and urges us "we should enjoy our big market gains now."
What he doesn't tell us is that "our portfolio" is a pittance compared with the wealthiest Americans. Indeed, most Americans do not own stock. And the top 10% of Americans own fully 84% of all stock owned by Americans. He also doesn't make clear that the heirs to the Walton family fortune, plus Warren Buffet and Jeff Bezos own as much wealth has the bottom 160 million Americans combined.
So "your portfolio" doesn't mean squat compared with the immoral and obscene concentration of wealth in a few uber-wealthy individuals in this country.
Instead of this elitist message, The Upshot should be pointing out the need for major reform of our country to bring back the disappearing middle class, taxing the wealthy to create real opportunities for college, for Medicare for all, and for investment in paid family leave and our nation's infrastructure.
No, I will not "enjoy" market gains while the Republicans put us on the cusp of national bankruptcy, and hand out major new tax cuts to the wealthiest Americans.
The Upshot should take this opportunity to change its tune, and begin advocating for all Americans this Thanksgiving, not just the uber-wealthy.
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@Sean
Annuitants' incomes are often, by individual choice, based upon stock market trades and dividends. These incomes can often also be hedged by keeping separate funds in real estate-based investments.
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@Sean Whether you have millions or ten $K saved away, solid gains are welcome across the spectrum.
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@Sean , yes, when I read that, I thought that Irwin's "we" must be a different "we" from a lot of us. Somewhere, Madame DeFarge smiles grimly.
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Low economic growth is a very good thing. Our consumer driven economy is ruining our environment. We need a much more equitable distribution of the rewards and a small increase in the rewards.
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And far fewer humans consuming these resources.
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@libdemtex
Paid theatrical performances can involve little consumption of tangible resources but can produce great wealth for local performers.
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This is portfolio management 101. Low current asset prices (use whatever metric you want, such as price to earnings) indicate high future returns; high current asset prices indicate low returns.
Yes, low safe asset returns (US treasuries or treasuries in other countries) make the cash flow of future earnings worth more in today's dollars.
But, overall, invest for the long term and don't make "market timing" moves. I feel bad for anyone who sold their portfolio when Obama was elected or when Trump was elected (unless the sale was part of their long-term investment plan). Best to write down a plan (such as invest in a mix of low cost index funds until age 50, then begin to shift 5% per year to corporate bonds....). Selling when someone on TV starts yelling or a politician you don't like is elected is giving someone else control of your financial future.
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"But the interesting thing about this current moment in markets is that the prices of different assets look reasonable relative to one another, while looking absurdly overvalued relative to those of decades past." This is called an everything bubble, Neil.
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My reading was that it was b/c the cost of money is so low today relative to other periods of time.
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@Flipside Yup I understand what Irwin is saying here, but overpriced equities aren't suddenly a bargain just because other asset classes are a bargain. For that to be true you'd have to believe that "this time really is different," but I've been around too long to believe that.
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All assets are extremely overvalued, yet the beat goes on and could go on for a long time until - it doesn't. I can't believe how much time I spend to try to squeeze an extra 1/4 point out of my portfolio so that I can pay the taxes on my annual RMD. It is currently impossible for me to pay the income taxes on my RMD without invading principal from the meager yield available on safe assets (US Treasuries of short duration). So much for the golden years when, to treat myself, I upgrade my Starbucks from a tall to a grande.
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@Mister Ed z May the rest of us have your problem, not enough investment income in your tax deferred investment pot growing for how many decades? . . .to pay the taxes on your RMD! That means you are paying taxes in excess of 100% on the return in your portfolio. I'm not sure how that can happen with the max capital gain rate at what 25%?
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The future is like throwing dice or listening to a tweet. Anything can send the markets reeling. We all put faith in them being the best place to store our money, but having a good chunk of money available in cash is how best to weather the ups and downs. Also, reduce your debt and living debt free helps in sleeping at night. Still there are no guarantees, no silver bullets and no soothsayers alive.
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Every privately held asset class at a record high, especially the most liquid one, the stock market? Most liquid means the one involving the least commitment by its holder. Zero or negative interest rates worldwide?
One more datapoint for understanding the big picture—now the second richest guy, pushing Gates down a notch, is a luxury goods merchant.
Too much money? Negative interest means you pay somebody to guard it instead of putting it to work for you.
What the heck is going on here? Capitalists surrender? Lack of imagination for productive investment? Just plain giving up?
Meanwhile, essential public investment: 1) all the steps needed to halt thickening of the carbon cloud and, 2) education of our children way beyond what was adequate a century ago, is grossly underfunded.
We're in a very tippy situation here. Powell probably get's it. Bloomberg maybe. Piketty, Saez, Warren, Sanders and a few others are trying. Interesting times.
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@wmferree
GREED.
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"The interesting thing about this current moment in markets is that the prices of different assets look reasonable relative to one another, while looking absurdly overvalued relative to those of decades past."
The PE level in equity prices when compared to the past is flashing red. Almost all asset prices are. Low interest rates, and a lack of true alternatives of where to put money seem to be in part responsible. But low interest rates are not alone sufficient. We need growth, or the valuations are not justifiable.
The reality is, if we were to study who controls the market by analyzing how diverse the pool of controlling owners is (Herfindahl Index), we would find that there are few actual owners (those who control decisions). It's almost a Ponzi scheme. When you have dividend recapitalizations, golden parachutes, and other outcomes in which reward isn't commensurate with value delivered (a sort of disinvestment), we have a recipe for disaster. But markets stay irrational longer than most individuals can stay solvent. It may be a while.
Ultimately, money isn't truly circulating where it needs to be, and investment (in society's true needs) isn't happening. Too much of our financial resources are under the control of too few. Higher taxes, higher taxes, higher taxes. Then the government can truly invest in human capital, which isn't really happening in the private sector. This is my Rx. Vote blue, vote blue, vote blue.
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Yet another financial article that implies some magical ability to “foresee” the future. We continue to cling to our anachronistic belief that just because someone is a market analyst or a “senior economics correspondent” they have prognostication powers. This article is a perfect example of misleading nature of predictive press:
The future is never “foreseeable.” It is merely foreguessable. And guesses, by their very nature, are usually wrong almost as often as they are right.
The use of present or future tense to describe what has already happened. Market ARE not higher. They WERE higher. To say that the markets “ are essentially presaging a gloomy, even if not disastrous, economic decade...” is stating something as fact that is merely the author’s guess. Editors please consider that statements like this are misleading and could harm investors if actual conjecture is taken as gospel.
The future - in every aspect - is both unknown and unknowable.
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So what do you do with your money, and why? How do you make your guesses?
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@Stan Sutton
The State of Florida, where Don McDonald asserts he lives, is the only US state that forbids seizure of a primary residence (regardless of how grand) in bankruptcy or through tax liens.
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@5barris: That's an interesting observation. I actually agree with what Don McDonald says about how this article (and many others) are written with inappropriate language that may mislead investors. But despite the fact that past returns do not guarantee future results, those people who have money still have to figure out what to do with it. Accepting that the future is unknown and unknowable doesn't help much with that.
On a separate (but related) point, what is the State of Florida doing about those homeowners whose primary residences are underwater? I don't mean financially but literally. Does the State offer any protection against seizure of property by marine waters? (And could anyone have predicted that that would happen?)
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Well written imo.
If I can summarize your scholarly report on the world's finances it is the end is near, repent ye sinners.
The end will come, the only question is when and how bad.
Have at least one year's expenses stashed away in cash.
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Missed one important trend - financial 'experts' telling us on a month-by-month basis in 2019 that we were 'moments' away from significant declines - culminating in a parade of gurus forecasting a recession for 2020.
So - how is all of that shaping up?
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@SteveRR Exactly. The 'experts' forecasts have become like horoscopes - you forget all the times they were wrong and remember the time they were correct. Worse, that time becomes the basis of their next book or webinar: "Meet the only guy who predicted the 20XX crash!"
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While I see the connection between low growth expectations and current bond prices, I don't think the article makes the same connection with stock prices. There isn't an explanation here of why, if investors believe growth and corporate earnings will be low in the future, we now have record prices for stocks. That would seem to indicate an expectation of higher future earnings, and the comparison with the same equity price rise a few years ago supports that position.
Maybe the point is that money is flowing into stocks because the returns on fixed income investments are expected to be so low and there's really nowhere else to invest. But that isn't a point that's made explicit here.
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@Kurt
You are exactly right. We are in a TINA economy, "There Is No Alternative," to putting our money in the market.
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The world has been in a low interest mode for the last ten years and most of the developed world has been in a slow-ish but steady growth mode over that period. Share prices are largely driven by corporate profitability and although this has softened over the last quarter or so after years of strong performance it certainly hasn't collapsed. Add to this actions by central banks (the Fed has just embarked on QE 4 whatever they say) and it's hard to see any major imminent threat to stock prices or the overall US economy for that matter. Continued slow growth (which Irwin was complaining about for years during the Obama administration) along with low rates looks like the outlook for the next few years absent a black swan event.
The only visible cloud is the debt issue. It continues to climb and most expansions come to an end because of over leveraging. We are not there yet but one should always have one eye on it.
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In the event of an economic collapse paying back the boatload of debt now being loaded on board would prove to be especially painful.
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Growth growth growth is the mantra, but only of wealth. Is there a limit to all of this endless “growth” of assets?
I’d like to see growth of peace good will and understanding I won’t be holding my breath.
Cancer is also unchecked growth, it’s an illness. We owe our children better.
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@John
Thank you John. Low growth seems like just what the world needs for the foreseeable future. Perhaps with low growth as the norm, the wild oscillations will dampen, the natural environment might have a prayer,
Picture low/slow/ or even no financial growth in concert with a global redistribution of financial opportunity.
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I share the author’s view that when the relative economic good times end it will be bad, very bad. I say this based on a dim sense of economic history, such as when the good times of the 1960’s gave way to the stagflation of the 1970’s, and then the insanely high interest rates of the 1980’s.
Also, I am convinced that however bad it will be, it will be made much worse by the decisions Trump is taking now. In this I am speaking about his absurd tax giveaway to corporations, manipulating the fed, tariffs, and worst of all, making cutthroat capitalism even more brutal and uncertain.
There are two aspects of this yet-to-emerge crash that are deeply troubling. First, whomever wins in 2020 will own this disaster, which will be devastating to a Democratic administration, and I really want Trump to wear this one since he has worked so hard to make it happen. I want Trump to be the Herbert Hoover of the 21st century.
Second, a great many of us are running out of runway, both in time and money; and a crash will become the sad epilogue of my generation’s abject moral failure. We became adults during the disaster bequeathed is by Nixon, and we may end our economic lives suffering at the hands of the most incompetent man to occupy the Presidency.
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I would be interested in knowing how the 'Debt Valley' we're in now affects this future slowing.
23 Trillion in National Debt
14 Trillion in Household Debt
1 Trillion in Yearly Budget Deficits
1 Trillion in Student Debt
not to mention skyrocketing credit card, housing, and car debt.
I'm guessing it can't be good
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@Michael
You did mention them. Student, credit card, mortgage and car debt plus a few other components are what make up household debt.
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And here is Hugh's prediction for the next five years for the bottom 10%:
Your economic assets and lives will move in a downward direction, in relation to the top 10%. That is what is meant by cutthroat capitalism, there always has to be a large mass at the bottom of the pyramid screaming in anxiety and beaten down to a point they will work for peanuts.
Your children will have little chance to get into a college, as colleges will be more and more expensive. You will continue to be in competition for jobs with the world's poorest who live in countries that have outlawed unions. The housing markets in most cities will continue to price you out of the city, and for some, to living in cars. Your economic depression will be seen as your fault, for the elite own the boardrooms and yes, media.
You will lose, no matter who gets elected, because democracy is not allowed in the place that it matters, corporate boardrooms.
Suffer and die early and without the best medical care, for as the AMA has protested for decades, national health care is Communism.
You will live as guest workers in your own country, with the police making sure you don't stray onto the walled off lands of the very rich.
Hugh
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@Hugh Massengill
Sad, but true the world over. Add the disruptions from climate change, and you have a life that is "nasty, brutish and short."
Sadder still, this problem is solvable: there is more than enough to go around. What is lacking is good will.
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@Hugh Massengill
Very important summary, Hugh, of what is already here for the bottom 10% (or more). I'm reminded of those horrific scenes in Blade Runner of the streets of Los Angeles filled with the hordes who live on those streets, while the top 1% live above in gated "sky" cities.
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@Hugh Massengill - IMO Hugh is an optimist!
His dire forecast will apply to the lower 50% of US workers / citizens; not just the bottom 10%.
And yet the majority of this group of our fellow citizens cannot tell the difference between a Con and someone who wants to help them move forward to a more rewarding life. Go figure!
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