Quote: (12-26-2018 11:09 AM)Troller Wrote:  

If I want to sell a house and have 15 buyers maybe I will raise the price of the house. They will probably pay more. If there´s no buyer will have to lower the price. Buyers if interest rate goes up can´t buy the house. Because the effort to pay the monthly installment will be bigger. So your price cannot reach you buyer because the rate increase ate the space where your price and the buyer could connect. Everytime there´s a rate increase you are eating a chunk of an asset price.

There's just one problem: Housing prices have gone up when interest rates have risen. And crashed when interest rates have risen. They've gone up when interest rates have declined. And crashed when interest rates have declined. In an academic, all-else-held-constant environment, rising discount rates will decrease asset present values in a predictable manner. The problem is, highly liquid capital markets are not predictable over short periods of time. They have been, historically, very predictable over long periods of time: They go up, and they are mean-reverting.

Making no changes whatsoever. Continuing to max out all retirement accounts into funds with an aggressive mix of stocks vs. bonds. I'm relatively young with good cash flow so I'm ignoring the waves.

Quote: (12-26-2018 08:14 PM)SamuelBRoberts Wrote:  

Quote: (12-26-2018 08:08 PM)The Father Wrote:  

Why do you think anyone who followed Malkiel lost their shirt on shitcoin?

They failed to pull out when things turned sour

This is also the reason too many men pay child support...

Student loan bubble. Buy bitcoin.

Quote: (12-26-2018 08:23 PM)Neo Wrote:  

Making no changes whatsoever. Continuing to max out all retirement accounts into funds with an aggressive mix of stocks vs. bonds. I'm relatively young with good cash flow so I'm ignoring the waves.

Young, and buying bonds.

Why on Earth would you buy bitcoin because there's a student loan bubble?

Quote: (12-26-2018 09:26 PM)SamuelBRoberts Wrote:  

Why on Earth would you buy bitcoin because there's a student loan bubble?

Bitcoin is a deflationary store of value, and the student loan bubble will cause the market to go bearish at best or crash at worst, causing more wealth to move into bitcoin.

Quote: (12-26-2018 09:34 PM)Swordfish1010 Wrote:  

Bitcoin is a deflationary store of value, and the student loan bubble will cause the market to go bearish at best or crash at worst, causing more wealth to move into bitcoin.

This is what I meant a few posts ago when I said coming up with "narratives" is how you lose a lot of money.

The student loan bubble has minimal effect on the short-medium term stock market. It's a problem, and a nasty one, but not one that's going to affect your stock portfolio anytime soon.

Also, as far as I know there's no real inverse correlation between stock prices and crypto prices. At least, I've never seen one.

So yeah, don't throw a bunch of money at BTC because of the student loan bubble. That would be silly.

Quote: (12-26-2018 09:34 PM)Swordfish1010 Wrote:  

Quote: (12-26-2018 09:26 PM)SamuelBRoberts Wrote:  

Why on Earth would you buy bitcoin because there's a student loan bubble?

Bitcoin is a deflationary store of value, and the student loan bubble will cause the market to go bearish at best or crash at worst, causing more wealth to move into bitcoin.

I think the last year has proven bitcoin is a store of of nothing but a negative example.

Quote: (12-26-2018 09:13 PM)Swordfish1010 Wrote:  

Quote: (12-26-2018 08:23 PM)Neo Wrote:  

Making no changes whatsoever. Continuing to max out all retirement accounts into funds with an aggressive mix of stocks vs. bonds. I'm relatively young with good cash flow so I'm ignoring the waves.

Young, and buying bonds.

Well he did say an aggressive mix of stocks vs bonds...could be 95% stocks and 5% bonds...even that would be too much fixed income for a young person, if the bonds were UST's...but they could be emerging market bonds, high yield bonds...all of which have a more volatile risk/reward profile and which might have a small role in a young person's portfolio.

I've been lucky. I rolled over my last 401k in September and decided, based on conditions, to time the market for once. Built a 100% bond basket with a 5 year duration and started buying up equities again with new contributions. Saved my own ass.

This morning, I made a large move to buy into 50/50 U.S./international equities to accelerate that, figuring this is probably an acceptable discount to justify grabbing up some stock. I'm sure I'll lose it all in the morning, but that was an amusing day participating in an epic rally by accident.

Also shifted 10% of my portfolio into a gold ETF, just in case we hit 2008-style mass panic and see 2011/2012 again. I do not advocate holding gold in a growth portfolio in general, but I do see it for stability/diversification in times of panic.

A lot of this, in my opinion, is being driven by tax planning. With massive losses and index funds ruling the day, everybody is crushing the exits to get tax losses on the books before year-end and you saw that end today. Short sellers will put off covering until January and more demand should materialize then. That will be a more serious test of where we're headed.

Quote: (12-26-2018 10:34 PM)Jetset Wrote:  

Also shifted 10% of my portfolio into a gold ETF, just in case we hit 2008-style mass panic and see 2011/2012 again. I do not advocate holding gold in a growth portfolio in general, but I do see it for stability/diversification in times of panic.

Yen or Swiss francs have traditionally been a better safe haven for scared money, FWIW.

The S&P 500 was down about 20% from the October Highs as of Christmas Eve. That, technically, qualifies as a bear market.

After today's rally, it's 'only' down 16%.

One thing to keep in mind is that markets "crash" after they've already undergone some , or significant , technical damage. They don't just crash when it's been moving up a while or basing out in a calm sideways fashion. Sure, they will start to sell off often in times like this, such as what began in October this year. A sell off.

But an outright crash, like what happened in 1929, 2008 or 1987 happens from a point where the market is already damaged and investors are talking about the market "being in trouble"

From a technical and, to a lesser extent, fundamental standpoint, this market reminds me of 1987. In 1987, the markets started selling off and the S&P was down 14% on October 17 from the highs earlier that month. Investors were noticing this and getting a little worried. Then, from that damaged condition, it did a waterslide, crashing much lower (notice the sudden 'gap down' the trading day after October 17) :






The current chart of the S&P 500 looks similar to the pre-crash 1987 chart up until that October 17 point. It's undergone technical damage, down 16% at this point, but, it hasn't crashed. It's only in the 'set-up' condition for a potential slide/crash.

Am I saying the market's about to slide and go down another 15+ percent in the next week or so? Not necessarily. The current market does, however, resemble the behavior of 1987 conditions. And, as I mentioned, it's good to bear in mind markets crash from already-oversold, volatile conditions. They don't crash from "good" or stable conditions.

Quote: (12-26-2018 08:16 PM)The Father Wrote:  

Quote: (12-26-2018 11:09 AM)Troller Wrote:  

If I want to sell a house and have 15 buyers maybe I will raise the price of the house. They will probably pay more. If there´s no buyer will have to lower the price. Buyers if interest rate goes up can´t buy the house. Because the effort to pay the monthly installment will be bigger. So your price cannot reach you buyer because the rate increase ate the space where your price and the buyer could connect. Everytime there´s a rate increase you are eating a chunk of an asset price.

There's just one problem: Housing prices have gone up when interest rates have risen. And crashed when interest rates have risen. They've gone up when interest rates have declined. And crashed when interest rates have declined. In an academic, all-else-held-constant environment, rising discount rates will decrease asset present values in a predictable manner. The problem is, highly liquid capital markets are not predictable over short periods of time. They have been, historically, very predictable over long periods of time: They go up, and they are mean-reverting.

This is a ridiculous statement. And goes against the most basic common sense. Unless you have another significant event slowing down the inevitable effect of interest rates (vg brexit, taxes, inflation, ratings, etc), if interest rate is raised or lowered of course you will have a slowdown in housing and economy or the opposite. The time it takes for the effect of the raise to be noticed is debatable. In the paper I quote bellow the time estimated to feel the effect of a cut in interest rate is 3 years. Real house prices around the world tend to move in the same direction for about a year after being hit by a disturbance, then exhibit a modest reversal.
A small cut or raise cannot break a market. Other factors can break a market. But interest raises above a certain threshold are decisive in weakening it. For me it´s like a balloon the more you blow into it the more weak it becomes and prone to pop.

Raise interest rates to 20% and will see if the housing and stocks dont go bust in 6 month-1year. The correlation is evident. Other factors might delay it.

https://www.bis.org/publ/work665.pdf

"Most empirical studies assume that short-term interest rates do not influence housevprice growth other than through the domestic cost of borrowing, ie by their influence on long-term interest rates. The findings in this paper suggest that this view might be mistaken: changes in short-term interest rates seem to have a strong and persistent impact on house price growth. Moreover, global, ie US short-term interest rates – not just domestic ones – seem to matter, both in advanced economies and EMEs. We interpret the relative importance of short-term interest rates in driving house prices as indicating an important role for the bank lending channel of monetary policy in determining housing financing conditions, especially outside the United States, where securitisation of home mortgages is less prevalent.
The larger effect of interest rates on house prices we find reflects in part the use in our regressions of a long distributed lag of interest rate changes. For the United
States, our estimates for the period from 1970 to the end of 1999 suggest that a 100 basis-point fall in the nominal short-term rate, accompanied by an equivalent fall in the real short-term rate, generated a 5 percentage point rise in real house prices, relative to baseline, after three years. We find an even larger effect if we include the data through end-2015. For other advanced economies and EMEs, we estimate that a 100 basis-point fall in domestic short-term interest rates, combined with an
equivalent fall in the US real rate, generates an increase in house prices of up to 3½ percentage points, relative to baseline, after three years.
Another reason we find larger interest rate effects is by allowing for inertia in house price movements. We find strong evidence against the random walk
hypothesis: real house prices around the world tend to move in the same direction for about a year after being hit by a disturbance, then exhibit a modest reversal. We
think that this inertia in house prices reflects the large search and transaction costs associated with trading residential real estate and shifting between owner-occupied
and rental housing. These costs are ignored in the user cost model, which predicts a fairly high interest rate sensitivity for house prices.
Our findings also suggest a potentially important role for monetary policy in countering financial instability. While higher short-term interest rates alone cannot significantly dampen the demand for housing, slower house price growth can give supervisors more time to implement measures to strengthen the financial system. At
the same time, the finding that house prices adjust to interest rate changes gradually over time suggests that modest cuts in policy rates are not likely to rapidly fuel house price bubbles."

Quote: (12-27-2018 05:25 AM)Troller Wrote:  

Quote: (12-26-2018 08:16 PM)The Father Wrote:  

Quote: (12-26-2018 11:09 AM)Troller Wrote:  

If I want to sell a house and have 15 buyers maybe I will raise the price of the house. They will probably pay more. If there´s no buyer will have to lower the price. Buyers if interest rate goes up can´t buy the house. Because the effort to pay the monthly installment will be bigger. So your price cannot reach you buyer because the rate increase ate the space where your price and the buyer could connect. Everytime there´s a rate increase you are eating a chunk of an asset price.

There's just one problem: Housing prices have gone up when interest rates have risen. And crashed when interest rates have risen. They've gone up when interest rates have declined. And crashed when interest rates have declined. In an academic, all-else-held-constant environment, rising discount rates will decrease asset present values in a predictable manner. The problem is, highly liquid capital markets are not predictable over short periods of time. They have been, historically, very predictable over long periods of time: They go up, and they are mean-reverting.

This is a ridiculous statement. And goes against the most basic common sense. Unless you have another significant event slowing down the inevitable effect of interest rates (vg brexit, taxes, inflation, ratings, etc), if interest rate is raised or lowered of course you will have a slowdown in housing and economy or the opposite.

It's not just a statement - it's actually a statement of fact. The late 1970's would be the best example. Interest rates were out of control - close to the 20% level you mention. And real estate went through the roof. There are also times when interest rates were being lowered and real estate soared (early 2000's). And times when rates were being raised and it crashed and times when rates were being lowered and it crashed. The only "ridiculous statement" is your objection to the basic premise of my last post: Any fool can understand that, in an excel model, raising a discount rate will decrease the calculated value of something...but capital markets also price in future expectations about LOTS of variables: interest rates, inflation, supply & demand (particularly as it relates to demographics...or did you think it was an accident that housing boomed the most when the baby boomers came of age?), tax policy, construction costs (particularly labor, but also materials), etc. So saying "When x happens y always happens" is foolish.

The best you can hope for is to build a multi-variable model that, in a BEST CASE, tells you the risk of a price decline is heightened. But no one variable (or even a model of hundreds of variables) will tell you "if x then y" in equities, housing prices, or anything else. UST comes the closest - but even then the demand for UST by pension funds drives price nearly as much as rates do.

Looking at the charts, there is a bit of a similarity to the 2008 crash here that I don't really like.
If the S&P gets back up to about 2650 I'm going consider the bear scenario voided. For now I'm in wait and see mode.

Regarding stocks having no correlation to crypto. When the stock market collapses what you might get is quantitative easing and a dollar crisis. This brings us to Bitcoin and gold. We've already seen how 2008 lead to gold pumping from $400 to $2k. Bitcoin will probably pump too. So yes, stocks aren't correlated with Bitcoin but you can see how one can lead to affecting the other.

You might get that.
You might also get a scenario where exotic and highly volatile assets like bitcoin are considered an expensive luxury good and nobody wants to buy it.

In the absence of any past data, one scenario's just as good as another.

Trump v the Federal Reserve


QUESTION: Mr. Armstrong; A spectacular call. You gave the day and the market bottomed within 100 points of your number. You always nail it. I find it curious how they blamed Trump and the Fed. Can Trump fire the head of the Fed? I really think he seriously needs to attend your WEC. He would have seen this move coming.

Congrats!

FG

ANSWER: No. President Trump’s comments about firing Federal Reserve Chairman Jerome Powell are really off the wall. The problem is he has the classic TV talking heads view that stocks will crash with higher interest rates. Trump’s frustration with the central bank chief intensified following the interest-rate increase and months of stock-market losses. He is oblivious to the real crisis which is the low-interest rates are destroying the pension funds.

Meanwhile, the media blames Trump for his tweets and the talking heads attribute the decline to interest rates. Powell cannot publicly state why rates have to rise or he would create a real debt panic. Trump is clueless as is Capitol Hill with the monumental crisis in global debt.

For now, the news will bash the stocks when down, and when investors/traders see there can be no flight to bonds as quality, the real panic will begin. I wish I could reverse this mess, but reality states Trump’s handlers are rooting for the Deep State and would never let me near him.

The Democrats want the stocks to crash for they can blame Trump and try to win the losers to vote for their team. The shame here is this is not about running the nation or the economy to benefit all, it is just about winning the 2020 election. Since the ECM turns in January 2020 rather than the elections in November 2020, this is indicating that we may have a psychological shift prior to the elections.

https://www.armstrongeconomics.com/inter...l-reserve/

Quote: (12-26-2018 10:49 PM)robreke Wrote:  

And, as I mentioned, it's good to bear in mind markets crash from already-oversold, volatile conditions. They don't crash from "good" or stable conditions.

They don't crash when you aren't in recession. We aren't. All economic indicators are super solid, actually. I'm not just saying this because I'm a bull. I wasn't until I realized that the doomporn has been, and will be, consistently wrong.

Yes, we are moving towards a tremendous crash in the next 12 years, but the bubble before that is gonna be one helluva a run. And people won't be telling you to sell, they'll be asking why you aren't buying. Like the doorman at your building and shit.

It's a shame that whenever an economic pundit starts talking about the Deep State it almost always means they're a weirdo crank, 'cause I'm curious about what he means by low-interest rates destroying the pension funds.

Does he mean that low interest rates are putting the pension funds at risk by forcing them to look at riskier investments to achieve the necessary rates of return to meet their projects? Or is he talking about something else that's less-obvious?

jeff, Armstrong is maybe my favorite economist

He's right on, on so many things. Powell is doing the right thing by raising rates SO there is a mechanism for greasing the wheels WHEN the economic data is NOT good, which is NOT NOW (it's just fine, so raise them). If you don't do that, you are what the ECB is, which is fucked. Just ask MA

It's hard to get perfect timing, but his models are solid; no one is God though. His next inflection point is Jan 2020.

Quote: (12-27-2018 09:25 PM)SamuelBRoberts Wrote:  

Does he mean that low interest rates are putting the pension funds at risk by forcing them to look at riskier investments to achieve the necessary rates of return to meet their projects? Or is he talking about something else that's less-obvious?

Essentially, yes. Insurance companies too. Having so many people and things revolving around a business cycle (equities), including these entities and all the boomer retirees is a recipe for disaster. And that it'll be. But we have good times ahead, at least one more run.

Quote: (12-27-2018 09:32 PM)Kid Twist Wrote:  

Essentially, yes. Insurance companies too. Having so many people and things revolving around a business cycle (equities), including these entities and all the boomer retirees is a recipe for disaster. And that it'll be. But we have good times ahead, at least one more run.

Yeah, it's only gonna take one year like 2008 to fuck up those pension plans good. They're run by fat, stupid idiots who have no idea how to manage anything, let alone an equities crisis.

Sucks if you're a government worker, but I'm not sure how that spills over into a wider economic crash.

Quote: (12-27-2018 08:46 PM)[email protected] Wrote:  

Regarding stocks having no correlation to crypto. When the stock market collapses what you might get is quantitative easing and a dollar crisis. This brings us to Bitcoin and gold. We've already seen how 2008 lead to gold pumping from $400 to $2k. Bitcoin will probably pump too. So yes, stocks aren't correlated with Bitcoin but you can see how one can lead to affecting the other.

QE doesn't have as much effect on inflation on the economy as many think. The reason is the following; when QE dollars were created in 2008/09 it was to bail out the big banks who would have otherwise gone under, due, in large part to their toxic assets.

The QE dollars were deposited on the books of the companies to make them appear to be more financially robust than they were and "rescue" them. The Government bought those toxic bonds from the companies for this QE money. The QE money never entered the "main" economy per se. It stayed on the books (in stagnant accounts) of the banks until the bonds matured. QE doesn't cause inflation the way many people think because the dollars from it don't enter the economy the same way M1 money and "money in circulation" does.

The main culprits of inflation of the money supply are the ever increasing M1 and the "money in circulation". One of the main methods of achieving this inflation and creation of money, is by the purchase of treasury securities from the Fed by the banks.

This video highlights some of these points: