Why is the market still going up?

[moneymaker]

Are you saying there is still money on the sidelines,predominately from people who got out first last time and hence don’t feel burned like many others, or could it be that China is buying America the American way. I think it will be a double dip like it was back in the Depression,of course I could be wrong,as my wife occasionaly reminds me.

[CA renter]

[quote=patientrenter]Supply and demand determine price. That’s true for peanuts and also for assets, like stocks and homes.

The aggregate demand for investment assets is total domestic savings plus imported savings, which is equal to the trade deficit. The aggregate supply of investment assets is all the houses we build, and new companies we fund, and new investment by existing companies, etc.

Supply of investment assets:
Since the 1980’s or even earlier, the US has needed about 10% of its GDP to be devoted to investments. It used to be higher when increases in our productivity were driven primarily by supplying workers with more and better machinery. Since we’ve become more focused on intellectual work, our productivity is enhanced most by education and knowledge and training in general. And that takes less capital.

Demand for investment assets (=savings):
Our trade deficit has been large for a long time, and increased significantly with China’s recent explosive economic growth. By 2007, this supply of savings from abroad looking for US assets amounted to about 5% of our GDP annually, or half of our entire annual supply of investment assets.

Whenever you have too much money chasing too few goods, you get inflation. And this mismatch between total savings and available domestic investment opportunities, driven by trade deficits and the lower need for traditional investment in our knowledge-driven economy, is at the heart of our asset bubbles. Until we deal with the causes of the mismatch, we will only be moving bubbles from one asset class to another, or re-inflating the ones that pop.[/quote]

Don’t forget the effects of low interest rates and high leverage. IMHO, this can be a much more significant cause of bubbles than actual savings. The past couple of decades have seen a significant decline in interest rates and a significant increase in leverage.

[CA renter]

[quote=patientrenter]Supply and demand determine price. That’s true for peanuts and also for assets, like stocks and homes.

The aggregate demand for investment assets is total domestic savings plus imported savings, which is equal to the trade deficit. The aggregate supply of investment assets is all the houses we build, and new companies we fund, and new investment by existing companies, etc.

Supply of investment assets:
Since the 1980’s or even earlier, the US has needed about 10% of its GDP to be devoted to investments. It used to be higher when increases in our productivity were driven primarily by supplying workers with more and better machinery. Since we’ve become more focused on intellectual work, our productivity is enhanced most by education and knowledge and training in general. And that takes less capital.

Demand for investment assets (=savings):
Our trade deficit has been large for a long time, and increased significantly with China’s recent explosive economic growth. By 2007, this supply of savings from abroad looking for US assets amounted to about 5% of our GDP annually, or half of our entire annual supply of investment assets.

Whenever you have too much money chasing too few goods, you get inflation. And this mismatch between total savings and available domestic investment opportunities, driven by trade deficits and the lower need for traditional investment in our knowledge-driven economy, is at the heart of our asset bubbles. Until we deal with the causes of the mismatch, we will only be moving bubbles from one asset class to another, or re-inflating the ones that pop.[/quote]

Don’t forget the effects of low interest rates and high leverage. IMHO, this can be a much more significant cause of bubbles than actual savings. The past couple of decades have seen a significant decline in interest rates and a significant increase in leverage.

[CA renter]

[quote=patientrenter]Supply and demand determine price. That’s true for peanuts and also for assets, like stocks and homes.

The aggregate demand for investment assets is total domestic savings plus imported savings, which is equal to the trade deficit. The aggregate supply of investment assets is all the houses we build, and new companies we fund, and new investment by existing companies, etc.

Supply of investment assets:
Since the 1980’s or even earlier, the US has needed about 10% of its GDP to be devoted to investments. It used to be higher when increases in our productivity were driven primarily by supplying workers with more and better machinery. Since we’ve become more focused on intellectual work, our productivity is enhanced most by education and knowledge and training in general. And that takes less capital.

Demand for investment assets (=savings):
Our trade deficit has been large for a long time, and increased significantly with China’s recent explosive economic growth. By 2007, this supply of savings from abroad looking for US assets amounted to about 5% of our GDP annually, or half of our entire annual supply of investment assets.

Whenever you have too much money chasing too few goods, you get inflation. And this mismatch between total savings and available domestic investment opportunities, driven by trade deficits and the lower need for traditional investment in our knowledge-driven economy, is at the heart of our asset bubbles. Until we deal with the causes of the mismatch, we will only be moving bubbles from one asset class to another, or re-inflating the ones that pop.[/quote]

Don’t forget the effects of low interest rates and high leverage. IMHO, this can be a much more significant cause of bubbles than actual savings. The past couple of decades have seen a significant decline in interest rates and a significant increase in leverage.

[CA renter]

[quote=patientrenter]Supply and demand determine price. That’s true for peanuts and also for assets, like stocks and homes.

The aggregate demand for investment assets is total domestic savings plus imported savings, which is equal to the trade deficit. The aggregate supply of investment assets is all the houses we build, and new companies we fund, and new investment by existing companies, etc.

Supply of investment assets:
Since the 1980’s or even earlier, the US has needed about 10% of its GDP to be devoted to investments. It used to be higher when increases in our productivity were driven primarily by supplying workers with more and better machinery. Since we’ve become more focused on intellectual work, our productivity is enhanced most by education and knowledge and training in general. And that takes less capital.

Demand for investment assets (=savings):
Our trade deficit has been large for a long time, and increased significantly with China’s recent explosive economic growth. By 2007, this supply of savings from abroad looking for US assets amounted to about 5% of our GDP annually, or half of our entire annual supply of investment assets.

Whenever you have too much money chasing too few goods, you get inflation. And this mismatch between total savings and available domestic investment opportunities, driven by trade deficits and the lower need for traditional investment in our knowledge-driven economy, is at the heart of our asset bubbles. Until we deal with the causes of the mismatch, we will only be moving bubbles from one asset class to another, or re-inflating the ones that pop.[/quote]

Don’t forget the effects of low interest rates and high leverage. IMHO, this can be a much more significant cause of bubbles than actual savings. The past couple of decades have seen a significant decline in interest rates and a significant increase in leverage.

[CA renter]

[quote=patientrenter]Supply and demand determine price. That’s true for peanuts and also for assets, like stocks and homes.

The aggregate demand for investment assets is total domestic savings plus imported savings, which is equal to the trade deficit. The aggregate supply of investment assets is all the houses we build, and new companies we fund, and new investment by existing companies, etc.

Supply of investment assets:
Since the 1980’s or even earlier, the US has needed about 10% of its GDP to be devoted to investments. It used to be higher when increases in our productivity were driven primarily by supplying workers with more and better machinery. Since we’ve become more focused on intellectual work, our productivity is enhanced most by education and knowledge and training in general. And that takes less capital.

Demand for investment assets (=savings):
Our trade deficit has been large for a long time, and increased significantly with China’s recent explosive economic growth. By 2007, this supply of savings from abroad looking for US assets amounted to about 5% of our GDP annually, or half of our entire annual supply of investment assets.

Whenever you have too much money chasing too few goods, you get inflation. And this mismatch between total savings and available domestic investment opportunities, driven by trade deficits and the lower need for traditional investment in our knowledge-driven economy, is at the heart of our asset bubbles. Until we deal with the causes of the mismatch, we will only be moving bubbles from one asset class to another, or re-inflating the ones that pop.[/quote]

Don’t forget the effects of low interest rates and high leverage. IMHO, this can be a much more significant cause of bubbles than actual savings. The past couple of decades have seen a significant decline in interest rates and a significant increase in leverage.

[patientrenter]

[quote=CA renter]…
Don’t forget the effects of low interest rates and high leverage. IMHO, this can be a much more significant cause of bubbles than actual savings. The past couple of decades have seen a significant decline in interest rates and a significant increase in leverage.[/quote]

Lending moves savings, and bad lending can lead to too much savings being directed into a limited pool of assets, driving up the prices of those assets to bubble levels. However, we suffered an increase in the price of almost all assets. Homes and stocks all rocketed up to bubble levels.

The problem was not so much that we were diverting savings money from one type of asset to another. That could be fixed primarily by changing lending practices. We just had too much total savings coming in, and you can’t fix the asset bubble and bad lending that results unless you fix the aggregate mismatch between too much savings compared to the good investment opportunities.

[patientrenter]

[quote=CA renter]…
Don’t forget the effects of low interest rates and high leverage. IMHO, this can be a much more significant cause of bubbles than actual savings. The past couple of decades have seen a significant decline in interest rates and a significant increase in leverage.[/quote]

Lending moves savings, and bad lending can lead to too much savings being directed into a limited pool of assets, driving up the prices of those assets to bubble levels. However, we suffered an increase in the price of almost all assets. Homes and stocks all rocketed up to bubble levels.

The problem was not so much that we were diverting savings money from one type of asset to another. That could be fixed primarily by changing lending practices. We just had too much total savings coming in, and you can’t fix the asset bubble and bad lending that results unless you fix the aggregate mismatch between too much savings compared to the good investment opportunities.

[patientrenter]

[quote=CA renter]…
Don’t forget the effects of low interest rates and high leverage. IMHO, this can be a much more significant cause of bubbles than actual savings. The past couple of decades have seen a significant decline in interest rates and a significant increase in leverage.[/quote]

Lending moves savings, and bad lending can lead to too much savings being directed into a limited pool of assets, driving up the prices of those assets to bubble levels. However, we suffered an increase in the price of almost all assets. Homes and stocks all rocketed up to bubble levels.

The problem was not so much that we were diverting savings money from one type of asset to another. That could be fixed primarily by changing lending practices. We just had too much total savings coming in, and you can’t fix the asset bubble and bad lending that results unless you fix the aggregate mismatch between too much savings compared to the good investment opportunities.

[patientrenter]

[quote=CA renter]…
Don’t forget the effects of low interest rates and high leverage. IMHO, this can be a much more significant cause of bubbles than actual savings. The past couple of decades have seen a significant decline in interest rates and a significant increase in leverage.[/quote]

Lending moves savings, and bad lending can lead to too much savings being directed into a limited pool of assets, driving up the prices of those assets to bubble levels. However, we suffered an increase in the price of almost all assets. Homes and stocks all rocketed up to bubble levels.

The problem was not so much that we were diverting savings money from one type of asset to another. That could be fixed primarily by changing lending practices. We just had too much total savings coming in, and you can’t fix the asset bubble and bad lending that results unless you fix the aggregate mismatch between too much savings compared to the good investment opportunities.

[patientrenter]

[quote=CA renter]…
Don’t forget the effects of low interest rates and high leverage. IMHO, this can be a much more significant cause of bubbles than actual savings. The past couple of decades have seen a significant decline in interest rates and a significant increase in leverage.[/quote]

Lending moves savings, and bad lending can lead to too much savings being directed into a limited pool of assets, driving up the prices of those assets to bubble levels. However, we suffered an increase in the price of almost all assets. Homes and stocks all rocketed up to bubble levels.

The problem was not so much that we were diverting savings money from one type of asset to another. That could be fixed primarily by changing lending practices. We just had too much total savings coming in, and you can’t fix the asset bubble and bad lending that results unless you fix the aggregate mismatch between too much savings compared to the good investment opportunities.

[CA renter]

[quote=patientrenter][quote=CA renter]…
Don’t forget the effects of low interest rates and high leverage. IMHO, this can be a much more significant cause of bubbles than actual savings. The past couple of decades have seen a significant decline in interest rates and a significant increase in leverage.[/quote]

Lending moves savings, and bad lending can lead to too much savings being directed into a limited pool of assets, driving up the prices of those assets to bubble levels. However, we suffered an increase in the price of almost all assets. Homes and stocks all rocketed up to bubble levels.

The problem was not so much that we were diverting savings money from one type of asset to another. That could be fixed primarily by changing lending practices. We just had too much total savings coming in, and you can’t fix the asset bubble and bad lending that results unless you fix the aggregate mismatch between too much savings compared to the good investment opportunities.[/quote]

IMHO, money was/is too cheap (artificially suppressed interest rates) and leverage was/is too high. In addition to this, we have a growing wealth disparity in this country and the rest of the world that does indeed create “too much savings.” If we want to solve that problem, we will have to raise marginal taxes and eliminate the preferential treatment of investments/capital (dividend and LT cap gains tax, etc.) over labor. Not sure anyone has the cojones to do what’s right (IMHO).

[CA renter]

[quote=patientrenter][quote=CA renter]…
Don’t forget the effects of low interest rates and high leverage. IMHO, this can be a much more significant cause of bubbles than actual savings. The past couple of decades have seen a significant decline in interest rates and a significant increase in leverage.[/quote]

Lending moves savings, and bad lending can lead to too much savings being directed into a limited pool of assets, driving up the prices of those assets to bubble levels. However, we suffered an increase in the price of almost all assets. Homes and stocks all rocketed up to bubble levels.

The problem was not so much that we were diverting savings money from one type of asset to another. That could be fixed primarily by changing lending practices. We just had too much total savings coming in, and you can’t fix the asset bubble and bad lending that results unless you fix the aggregate mismatch between too much savings compared to the good investment opportunities.[/quote]

IMHO, money was/is too cheap (artificially suppressed interest rates) and leverage was/is too high. In addition to this, we have a growing wealth disparity in this country and the rest of the world that does indeed create “too much savings.” If we want to solve that problem, we will have to raise marginal taxes and eliminate the preferential treatment of investments/capital (dividend and LT cap gains tax, etc.) over labor. Not sure anyone has the cojones to do what’s right (IMHO).

[CA renter]

[quote=patientrenter][quote=CA renter]…
Don’t forget the effects of low interest rates and high leverage. IMHO, this can be a much more significant cause of bubbles than actual savings. The past couple of decades have seen a significant decline in interest rates and a significant increase in leverage.[/quote]

Lending moves savings, and bad lending can lead to too much savings being directed into a limited pool of assets, driving up the prices of those assets to bubble levels. However, we suffered an increase in the price of almost all assets. Homes and stocks all rocketed up to bubble levels.

The problem was not so much that we were diverting savings money from one type of asset to another. That could be fixed primarily by changing lending practices. We just had too much total savings coming in, and you can’t fix the asset bubble and bad lending that results unless you fix the aggregate mismatch between too much savings compared to the good investment opportunities.[/quote]

IMHO, money was/is too cheap (artificially suppressed interest rates) and leverage was/is too high. In addition to this, we have a growing wealth disparity in this country and the rest of the world that does indeed create “too much savings.” If we want to solve that problem, we will have to raise marginal taxes and eliminate the preferential treatment of investments/capital (dividend and LT cap gains tax, etc.) over labor. Not sure anyone has the cojones to do what’s right (IMHO).

[CA renter]

[quote=patientrenter][quote=CA renter]…
Don’t forget the effects of low interest rates and high leverage. IMHO, this can be a much more significant cause of bubbles than actual savings. The past couple of decades have seen a significant decline in interest rates and a significant increase in leverage.[/quote]

Lending moves savings, and bad lending can lead to too much savings being directed into a limited pool of assets, driving up the prices of those assets to bubble levels. However, we suffered an increase in the price of almost all assets. Homes and stocks all rocketed up to bubble levels.

The problem was not so much that we were diverting savings money from one type of asset to another. That could be fixed primarily by changing lending practices. We just had too much total savings coming in, and you can’t fix the asset bubble and bad lending that results unless you fix the aggregate mismatch between too much savings compared to the good investment opportunities.[/quote]

IMHO, money was/is too cheap (artificially suppressed interest rates) and leverage was/is too high. In addition to this, we have a growing wealth disparity in this country and the rest of the world that does indeed create “too much savings.” If we want to solve that problem, we will have to raise marginal taxes and eliminate the preferential treatment of investments/capital (dividend and LT cap gains tax, etc.) over labor. Not sure anyone has the cojones to do what’s right (IMHO).

[Author]

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