Are savers doomed?

[livinincali]

[quote=moneymaker]I think a better question than “are savers doomed?” is “are 401K’s doomed?”. As with government there are 3 basic checks and balances, stocks,bonds,commodities. Problem with 401k’s is you can only invest in stocks or bonds, so when the market in over valued and interest rates start climbing you are screwed as an investor with no where to turn. The rich can invest in gold/silver but the little guy will get squeezed as the proverbial turnip.[/quote]

Sometimes the best option is just not losing and staying in cash.

[moneymaker]

For the working class, those not yet retired or 59 1/2, cash is not an option. In fact the options are rather limited. True there was just a run up so I guess a drop would be dollar averaged in, I’m just saying even if you know what is going to happen there is nothing the vast majority of us can do about it, frustrating.

[Leorocky]

You’re mostly citing opinions. Searching out opinions that are consistent with your own views is a perfect example of an echo chamber.

Again, inflation and money supply/velocity are different things and are strictly defined. Inflation has been negligent despite and changes in the underlying money supply.

Please do some research on stock valuations. They correlate very strongly with things like corporate profit and cash flow. Those are both at record highs. In other words, the fundamentals support the valuation. That’s not the case in a bubble when the valuation goes off the rails.

Yes, the Fed relieved a credit crunch by, duh, providing credit. Exactly what they are supposed to do.

1. See above about fundamentals

2. Rates should not be set with the goal being to ensure a return for those that want it or require it. Nor should people have any expectation of such. To say something like “banks should always pay at least 3% so people with savings can earn interest” is highly ignorant (I actually hear/read this).

A true free market would be very bad for almost everyone. I personally believe our markets should be more “free” but nowhere near a true free market i.e. no rules. No one if forced to do anything by the Fed.

The Feds job is to manage employment and price stability which has been overwhelming determined to be an environment of moderate inflation. Interest rates are one of the main tools they use. I’m not going to go into detail but please look into the magnitude of the recent recession; it’s similarities to the Great Depression and the different responses by the Fed.

There were consecutive years of double digit GDP declines during the GD, that’s deflation; it’s really, really bad. And you are advocating for it.

3. Is there a reasonable expectation, again based on fundamentals of the return? Stocks average ~10% a year over the long term. Is it speculating to put my long term money in stocks? If Apple comes out with a new product that I think will be a hit so I buy some shares am I speculating? The price of oil has dropped and rebounded several times in this generation alone. I have every expectation that it will rise again.

4. Sure.

5. Fairly large in context to what? 300MM people? 7B people?

[all]

[quote=Leorocky]
Please do some research on stock valuations. They correlate very strongly with things like corporate profit and cash flow. Those are both at record highs. In other words, the fundamentals support the valuation. That’s not the case in a bubble when the valuation goes off the rails. [/quote]
This Chart Pretty Much Sums It Up

[CA renter]

[quote=harvey][quote=CA renter]Living in an echo chamber ensures that you will be wrong a significant amount of the time, IMO.[/quote]

Especially when the echo chamber is built around one’s personal, self-contradictory definition for everything.[/quote]

Please explain what, specifically, you think is “self-contradictory” and why.

[CA renter]

[quote=all][quote=Leorocky]
Please do some research on stock valuations. They correlate very strongly with things like corporate profit and cash flow. Those are both at record highs. In other words, the fundamentals support the valuation. That’s not the case in a bubble when the valuation goes off the rails. [/quote]
This Chart Pretty Much Sums It Up[/quote]

From Rich’s piece (linked by all):

“That is the primary difference between US and international stocks right now: investors in the US market are betting that “this time is different,” and that valuations will—for the first time ever—fail to eventually revert down towards a more historically average level. Investors in international stocks, which are already near their average levels, don’t need to hope that this time is different at all.”

[Bold is mine.]

[CA renter]

And this…

“CHAPEL HILL, N.C. (MarketWatch) — No matter how you slice it, the stock market is overvalued.

In fact, based on six well-known and time-tested indicators, equities are more overvalued today than they’ve been between 69% and 89% of the past century’s bull-market tops.”

http://www.marketwatch.com/story/the-stock-market-is-overvalued-any-way-you-look-at-it-2015-01-13

Will get back to you later on your responses…

[Leorocky]

Again, the bolded statement is someone’s opinion. I fail to see how someone knows what “investors” as a whole are betting on.

If you had told me 2 hours ago that US equities valuations had deviated from that of other countries I would have said that would make sense. Emerging markets have been crap for several years now and the rest of the world ain’t so hot either (except for maybe China).

But our stock prices are still supported by strong fundamentals and valuations are not “off the rail”. Our economy is doing VERY well relative to the rest of the world.

For the record I feel as if the market is a little overvalued currently and that there is going to be a lot of volatility in the near future not related to fundamentals.

[Leorocky]

overvalued /= bubble

[CA renter]

[quote=Leorocky]Again, the bolded statement is someone’s opinion. I fail to see how someone knows what “investors” as a whole are betting on.

If you had told me 2 hours ago that US equities valuations had deviated from that of other countries I would have said that would make sense. Emerging markets have been crap for several years now and the rest of the world ain’t so hot either (except for maybe China).

But our stock prices are still supported by strong fundamentals and valuations are not “off the rail”. Our economy is doing VERY well relative to the rest of the world.

For the record I feel as if the market is a little overvalued currently and that there is going to be a lot of volatility in the near future not related to fundamentals.[/quote]

I’m not the type to go whistling past the graveyard. Numbers, charts, history, etc. all matter. Lots of people thought that housing prices in ~2003-2008 (and stock prices, and commodities prices…) were based on “fundamentals,” too. And people thought that using assumptions about forward earnings and “eyeballs” meant that internet stocks were fairly valued as well. I’m not one of those people.

[CA renter]

[quote=Leorocky]overvalued /= bubble[/quote]

speculation + leverage = bubble

[Anonymous]

[quote=CA renter]Please explain what, specifically, you think is “self-contradictory” and why.[/quote]

My fingers would grow weary from typing all the examples … but the standout from this thread is how you proclaim that deflation would be good because it “helps workers” while complaining about low interest rates because it “hurts people on fixed incomes” (I presume you are being sympathetic to grandmas with savings bonds…)

Of course deflation and high interest rates are contradictory, but you jump back and forth demanding both from the “powers that be.”

You make up your own rules of economics to suit your argument, often reversing yourself from sentence to sentence. And, as Lerocky points out, there’s always an opinion piece somewhere on the internet to support your thesis of the moment.

And now, on cue, you will declare that your are intellectually superior to me and anyone who disagrees with you. Of course it is fact, by your edict.

[CA renter]

[quote=Leorocky]You’re mostly citing opinions. Searching out opinions that are consistent with your own views is a perfect example of an echo chamber.

Again, inflation and money supply/velocity are different things and are strictly defined. Inflation has been negligent despite and changes in the underlying money supply.

Please do some research on stock valuations. They correlate very strongly with things like corporate profit and cash flow. Those are both at record highs. In other words, the fundamentals support the valuation. That’s not the case in a bubble when the valuation goes off the rails.

Yes, the Fed relieved a credit crunch by, duh, providing credit. Exactly what they are supposed to do.[/quote]

First, inflation has not been negligent, and we’ll have to agree to disagree about what inflation is and what causes it…to me, the inflation of the money supply comes before price inflation in almost every case, so I will always rely on that vs. backward-looking and incomplete information found in measures like CPI. CPI is not a good indicator of inflation as it misses a huge chunk of what’s going on in the economy. I’m not even going to get into the changes made to CPI which intentionally try to distort the real numbers. Also, you have to look at where prices would be absent all of the manipulations in order to find a base. They are measuring from an artificially elevated base.

No, they didn’t relieve a credit crunch. They CAUSED the “credit crunch” by inflating a credit bubble that preceded that credit crunch. And they have now created an even larger credit bubble, leaving us in an even more vulnerable position because they’ve spent resources that could have been saved up for another event.

[quote=Leorocky]1. See above about fundamentals[/quote]

Again, how do you define a bubble? What, specifically do you look for in order to ascertain that a bubble exists?

[quote=Leorocky]2. Rates should not be set with the goal being to ensure a return for those that want it or require it. Nor should people have any expectation of such. To say something like “banks should always pay at least 3% so people with savings can earn interest” is highly ignorant (I actually hear/read this).

A true free market would be very bad for almost everyone. I personally believe our markets should be more “free” but nowhere near a true free market i.e. no rules. No one if forced to do anything by the Fed.

The Feds job is to manage employment and price stability which has been overwhelming determined to be an environment of moderate inflation. Interest rates are one of the main tools they use. I’m not going to go into detail but please look into the magnitude of the recent recession; it’s similarities to the Great Depression and the different responses by the Fed.

There were consecutive years of double digit GDP declines during the GD, that’s deflation; it’s really, really bad. And you are advocating for it.[/quote]

Would you argue that having an inflation target — either explicit or implied — is any less manipulative than setting interest rates at a certain level? Why would anybody define “price stability” as prices that can only go up every year? And employment can be affected more accurately and efficiently through fiscal measures.

BTW, I would rarely, if ever, suggest that interest rates should be manipulated by a central bank. That’s what I’m arguing against, as a matter of fact. By manipulating interest rates, they are manipulating the risk premiums of investment assets and the prices of pretty much everything in the system. They distort pricing mechanisms and FORCE investors to accept a much lower return for the risks that they are taking…forcing them to move further out on the risk curve, usually at a time when leverage is high/growing, and others are doing the same thing. Do you not see any problems with this?

[quote=Leorocky]3. Is there a reasonable expectation, again based on fundamentals of the return? Stocks average ~10% a year over the long term. Is it speculating to put my long term money in stocks? If Apple comes out with a new product that I think will be a hit so I buy some shares am I speculating? The price of oil has dropped and rebounded several times in this generation alone. I have every expectation that it will rise again.[/quote]

I have far fewer problems with speculation in stocks; and, yes, buying with the expectation of rising prices is speculation…not all speculation is necessarily bad. I DO have a problem with speculation in finite basic resources and basic necessities.

[quote=Leorocky]4. Sure.

5. Fairly large in context to what? 300MM people? 7B people?[/quote]

If agree that speculation can increase volatility and increase the risk of bubbles, do you think any measures should be taken to reduce these risks?

Fairly large as in absolute numbers, not a relative number.

“According to the latest Credit Suisse Global Wealth Report, there are 98,700 “ultra high net worth” individuals in the world, defined as those with a net worth of over US$50 million.”

Read more: http://www.businessinsider.com/where-the-worlds-ultra-high-net-worth-live-2013-10#ixzz3P1ZGoSld

[FlyerInHi]

Humans created money. So why should we not adjust money supply to market conditions?

You have to spend money into the economy before it’s there. There’s no organic naturally occurring state of money.

[FlyerInHi]

[quote=harvey] Of course deflation and high interest rates are contradictory, but you jump back and forth demanding both from the “powers that be.”[/quote]

CAr, Harvey is right on there.

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