Posted on 02/08/2018 2:12:16 PM PST by CincyRichieRich
I'm an investor, and like most here, overwhelmed with the sources to read, the Q Anon stuff, the stimuli, the conspiracies...and now, a few days of stock market drops - including today's 1000 pt drop. I'd like to discuss with anyone who will participate, as to causes, where from here, etc.
Wall Street got tired of winning.
I’ll be buying some Chevron next week as soon as my deposit arrives.
Deep state. Too much winning for POTUS Trump - tax cuts, memos zeroing in on Dems and announcing a Military Parade. Just how much can the Deep State take? So we have a big market crash up and down for a while.
It’s really not that complicated. Look at the linked chart. See that first peak? That’s the dot.com bubble. The second peak is the housing bubble. Now, see that HUGE bubble we are currently in? That is the EVERYTHING bubble that the Fed has blown. God help us.
http://www.fedprimerate.com/s-and-p-500-index-history-chart.htm
Yeah my autocorrect kicked in while I was typing
“How do deficits affect corporate profits in the next few years ahead or so? Could you please explain that for us?”
The textbook answer is there are two effects. One effect is that government competes with everyone else for money to spend, making it harder for companies to obtain capital, driving up interest rates and drawing money from other places, like stocks, to interest-bearing investments. The second effect is that companies which receive revenues from government spending will have enhanced future earnings, driving up stock prices for such companies. These effects are somewhat opposite but are the textbook effects.
The less-textbook effects are how increased gov’t spending puts wage pressures on individuals due to inflationary pressures—individuals can’t as easily afford housing and other purchases. This is what we call a positive feedback loop in which gov’t spends, the cost-of-living increases, gov’t has to spend more to pay for entitlements and gov’t wages that must go up to meet inflation, and you have a self-reinforcing upward inflationary demon (aka, an inflationary “spiral”).
Scarcity is hard to find.
“Isn’t deficit spending actually a stimulant for the economy? Even if it isn’t prudent, and left unchecked inflationary? Wouldn’t a significant reduction in govt spending actually be bad for equities.”
That’s an excellent point/question. It *can* be...within limits. The US “economy” (and no two people have identical definitions for “the economy”; is it...unemployment? Corporate profits? the velocity of money? Ease of borrowing/availability of credit? Soundness of corporate or municipal credit? Some combination?) has built in expectations as to those factors. The economy has been addicted to very cheap money now for a decade; it is clear that the Fed now intends to raise rates, so whatever it is that is happening now, it would appear to be >>a course change for whatever has gone on for a decade.<< And what has gone on for a decade has been a relentlessly rising stock market.
It is not so much that deficit spending is good or bad for “the economy” and thus for stocks; it is the continuation of the good times or a tightening of credit, perhaps accompanied by a shrinking money supply. An oversupply of government spending is bound to be inflationary at some point and IMO, this what the market is seeing now. In particular, I believe the market is fearing rising wages and has at these high market levels already encompassed the tax cut pump. Wage rises are generally disdained, because they are very very sticky, and they infect the whole economy. They are reminiscent of the 70’s when workers demanded higher wages based upon the inflation they saw usually blamed upon the deficit spending for the VietNam war. The result was a market that went almost nowhere for quite a while and a sluggish economy. While the media (when it is not preoccupied bashing Trump) is touting a growing economy and still thinks that inflation will be kept in check like it has, unbelievably, for a decade, my thinking is that the market does not believe that.
Additionally, very recently, bonds have been hammered, which is a ratification or evidence that inflation is going to commence in earnest. But the Fed has GOT to get people to buy bonds, and one of the ways they force people into bonds even when they look like pure garbage is to crash the market so people run to perceived safety.
Agree and wish I had learned this a lot sooner. It is not set and forget though. A lot of widow and orphan paying companies are gone from solid dividends. A company borrowing to pay dividends is probably not long for it.
Managed dividend investments are the way to go.
This is true. The we pump ended some ti!e ago and this the 2015 malaise.
Excellent post. I told my kids you save for cars and houses but invest for your future. Investing is like owning land, you improve and cultivate it.
To the earlier point though, the budget deficit and national debt aren’t behind this market correction.
This market correction is playing into the idea that most investors were expecting a correction but were not going to sell because the market was going up. So now, some pigs are getting slaughtered
I have thought this is all about destroying Trump in the midterms. The swamp sees the steeple giving Trump too much credit for their well being. They will do anything to kill Trump.
Call me crazy.
Still, there has been some sage advice on this board.
Never sell the farm because of a bad crop handmade mortgage it needlessly to buy new tools because of a good crop.
One day perhaps the budget will be huge. Rates will maybe go higher and higher because of inflation and lack of faith in debt. And perhaps the economy goes bad too? Then there will not be enough money to cover the budget or the interest of the debt. That will be bad times... hope I’m not here then...
But now, let’s eat some cake!
Historically, this market has some strong similarities to 1982-1987
The debt market is early 1950s.
I’m getting 5.5 tax free in the muni market. That isn’t too shabby, though it’s leveraged a bit. Bonds may not be ideal for 5-8 yrs, but maybe they’re a good allocation for 2 yrs. man cannot live on stocks alone...,
Politics in the fed? I actually hadn’t considered that... deep state ally...hmmm
I think it a valid possibility. Good show sir.
This is the best advice I have seen.
Art Cashin knows market mechanics and behavior.
In his opinion the market is trying to find a bottom.
Take a deep breath. The market will need to drop another 5500 points to reach a 15 month low.
Please watch:
https://www.cnbc.com/2018/02/06/art-cashin-in-my-50-years-experience-stock-market-is-bottoming-out.html
You do realize that the Federal Reserve is not a part of the US federal government? That is is a private entity?
We need to audit the federal reserve.
https://nypost.com/2015/02/26/why-does-the-federal-reserve-fear-a-real-audit/
I own my own financial institution, so yes, I know that.
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