Aloha Oy Vey

[Bearbones]

Stagflation is not good for stocks. Do not let the strategists fool you with comparisons to 1967-1981 and how stocks finished pretty much where they started. Inflation took about two-thirds of the Dow's real value away in that market. Cash did better as did gold.

This market is different from that era's. It is more deflationary. Long treasury bonds have out-performed stocks since 1981 as the rate of growth in poor liabilities (private debt) outpaced both inflation and economic growth.

The only way out is for long-term rates on private liabilities to fall below the rate of growth or inflation and stay there for a long time. The authorities are trying to engineer this but are having only mixed success as they cannot control the rate of prvate sector debt growth.

Even if they should succeed, which I doubt, stocks will do poorly.

[TheDeepBlueSea]

On an inflation adjusted basis, stock prices overall were lower in 1982 than in 1974.

 

Not a good hedge. Especially when you consider that infaltion hedge stocks did very well indeed over that time. Take them out and the performance of the remainder was horrendous.

 

Would someone please get the details on what Fleck said? I would like to see a synopsis.

On an inflation-adjusted basis, own stocks from 1966 to 1982, was comparable to the 1930's.

 

 

What is interesting, from history, rather than personal experience (!), the '70s were less tough on people in general than were the '30s.

 

Was it because gov't debt ballooned? I have no good idea why at this point.

[Sphinxter]

When I decided to become a student trader I had to do a huge rethink on where $$ went. ?I cycle or use public transport, turn out lights when I leave rooms, handwater the garden, keep telephone calls to a minimum, cook my own food, buy 2nd hand clothing. ?My office desk is the kitchen table I ate meals off when I was a teenager 40 yrs ago. ?And guess what, IT'S NOT THAT DIFFICULT. ?I live simply and happily. ?But I also own my own place and have no debt which helps a lot. ?Now I'm making money out of trading, hey, I might even have to pay tax this year ?:shocked I'm really quite happy to continue with my present lifestyle. ?I suppose many students will have gone through a similar situation but as I went straight from school to work it was a new experience for me but certainly not a negative one. ?A lot of people might be about to find out how life on a slim budget works but there's nothing wrong with a challenge..

Yes yes yes yes yes!

 

Same here. And it's been the most liberating and "right" existential decision I've taken in years.

I am with you 100%. My physician buddies think I am nuts to buy clothes from the Salvation army. What I do not understand is why someone is throwing out nearly new clothes. It sure isn't me and last time I looked most surgeons earned a reasonable living.

 

Madame and I buy our furniture used. Same with our car. Drive my bike to work. What's the point of owning new furniture when you have 2 small kids. Live in the crappiest and smallest house in the most expensive neighborhood. My land taxes are one quarter of the guy next door. Our kids have never needed for clothes. We have so many friends with small children who bought all their clothes new and just keep giving them to us because they don't know what to do with them> It's nuts. Don't have a cell phone. Don't need one. Don't want to get called anyway. No answering machine. If I'm not home, who cares. Who the hell needs caller ID. What's that about. etc etc etc

 

Madame and I have frequent discussions on whether we are short changing ourselves and the answer is always no. We have everything material we could dream of. It's just that we don't need very much. Never had to get off the treadmill. Cause I never got on it.

 

Work 3 days a week. That's what it takes to pay the bills and put aside for retirement and kids education. Don't have a penny of debt.

 

Regards

 

WH

Brilliant.

That's phenominal guys. Truly an inspiration.

 

My wife and I are in the process of downsizing significantly. Although it might seem we need room with three small children the truth is if I ever swing my arms in a lazy circle I'll knock at least two over. Why have a bunch of extra rooms when everyone always seems to be crammed into one anyway?

 

I also realized that if the markets completely evaporated tomorrow - I mean all credit and money disappears - many people will be stranded, ruined, and desperate. The Amish might take 2-3 weeks to even notice before shrugging and continuing on with life. Not going Amish here, just suggesting that diversifying one's dependence portfolio could be a wise move.

 

While we've always lived well below our means, we still have too much. No debts but the house (about 50% equity/loan), but we strive for even greater security. So the truth is, we're going to begin on a WH-style reduction program to eliminate even more of our daily distraction and costs because we've come to realize that a simple life is a better life. And this realization is the best part of the recent politico-socio-economic downturn. That's something I'm very thankful for.

 

There's a lot of inspiration on this board.

 

(Budda - please come back!).

[BigWave]

When I decided to become a student trader I had to do a huge rethink on where $$ went.  I cycle or use public transport, turn out lights when I leave rooms, handwater the garden, keep telephone calls to a minimum, cook my own food, buy 2nd hand clothing.  My office desk is the kitchen table I ate meals off when I was a teenager 40 yrs ago.  And guess what, IT'S NOT THAT DIFFICULT.  I live simply and happily.  But I also own my own place and have no debt which helps a lot.  Now I'm making money out of trading, hey, I might even have to pay tax this year  :shocked I'm really quite happy to continue with my present lifestyle.  I suppose many students will have gone through a similar situation but as I went straight from school to work it was a new experience for me but certainly not a negative one.  A lot of people might be about to find out how life on a slim budget works but there's nothing wrong with a challenge..

Yes yes yes yes yes!

 

Same here. And it's been the most liberating and "right" existential decision I've taken in years.

Absolutely agree..I still enjoy the benefits of life, I just spend my money wisely. It's amazing how inexpensively one can live and live well if you try. Being single helps for sure, but spending money is just like investing, you make the money when you buy...

 

Merci- great post. Many stoolies lamented your absence, now I know why. Although I am not in your league, I trade a combination of funnymentals, tape action, and basic TA. I appreciate your insights and your style.

 

Of course, I am thankful for the experiences shared by all stoolies. It's what makes this site work. This is a human lab playing out in real time. And the results are tangible and transparent. Follow what you read at your own risk, because the lessons can be expensive..If you pay attention, the knowledge shared can also be rewarding.

 

Stoolies Rule.

 

BW

[Bearbones]

The 70s were better than the 30s because private sector credit growth was being arbitraged against an inflation rate that destroyed it's value. Economies, like ours, live and die on credit growth. The process has been underway for 50 years and we are maxing out.

In the 30s, credit was not yet the panacea for an economy that it became later on. We were on the gold standard that inhibited money and credit growth.

[swedjap]

A fact worth knowing....

 

"Index Funds Complicate the Markets

 

Wall Street loves index funds. They are the largest of mutual funds. They

are sold as less volatile instruments than single stocks, and investors

have flocked to them. Mutual funds use spiders and QQQ's and other exchange

traded index funds to simulate markets. Longboat Global Advisors recently

commented that an unintended consequence of the growth of index funds is

"We believe that indexing via market capitalization is destroying whatever

remains of pricing efficiency in the American market and is a primary

reason for the bear's grip and the concurrent expansion of volatility, very

simply put, every time a market cap index is bought, the fattest stocks

receive sponsorship by the sole criteria of their inclusion in the index...

[regardless of the actual prospects or value of the company]."

 

In April of 2002, Mr. Jean Claude Trichet, Governor of the Banque de

France, in a presentation at the Federal Reserve Bank of Chicago, gave

indexing as one of four reasons that markets appear less efficient. He

stated that index management helps "to amplify market trends, buying more

as the market rises and liquidating more as the market drops. It can be

argued that index funds distort the price of the targeted indices and that,

as a result, the indices end up creating rather than measuring

performance." "

 

John Mauldin's Weekly E-Letter

[Pee Brain]

Stagflation is not good for stocks. Do not let the strategists fool you with comparisons to 1967-1981 and how stocks finished pretty much where they started. Inflation took about two-thirds of the Dow's real value away in that market. Cash did better as did gold.

This market is different from that era's. It is more deflationary. Long treasury bonds have out-performed stocks since 1981 as the rate of growth in poor liabilities (private debt) outpaced both inflation and economic growth.

The only way out is for long-term rates on private liabilities to fall below the rate of growth or inflation and stay there for a long time. The authorities are trying to engineer this but are having only mixed success as they cannot control the rate of prvate sector debt growth.

Even if they should succeed, which I doubt, stocks will do poorly.

 

could you please expand on your thoughts?

 

thanks

[Hypertiger]

Ah, yes every banker is an immaculate conception worthy of funding by enslaving the entire population of the world in the compound interest attached to money/debt created out of nothing dance of bliss? And when the whole ponzi scheme blows up and the lower forms of less intelligent life begin starving you just open up the bankers bible to the final chapter ?How to blame the victims for your twisted and depraved sickness and get away with it?

 

The Bankers are not to blame for anything, all that ?fiat? money invested into social engineering to turn simple human beings into debt sponge zealots is not a cause of bubbles or manias at all?

 

All the fiat money invested by bankers into marketing and think tanks to whip the mob into the proper direction has no effect?

 

All the fiat money used to intoxicate the politicians and addict them to policies of exponential debt creation is the ultimate expression of beauty?

 

Bankers are puss? plain and simple

 

Alan Greenspan is not the cause of this mess but to elevate him to the level of some kind of hero for keeping this ?depraved thing? propped up long enough is overboard?

 

You banker leg humpers better drop to your knees and pray that a miracle shows up soon to save you from the acceptance of responsibility for your demented actions. The pathetic rationalizations and excuses you use to wriggle free from the shitstorm that you people created are going to consume you, there will not be an effective escape plan this time? You will be hunted down like animals?

 

Just waiting in the tall grass? Pray sucker pray.

[Pee Brain]

The intergenerational mortgage was common in Japan during their real estate bubble. ?Coming soon, to your hometown.

 

constant refinancing with cashout (consistently raising outstanding loan balance), interest only loans and sometimes 40 year terms are DEFACTO intergenerational mortgages.

 

and talk about finding a home: many folks here have made similar financial and lifestyle decisions that diverge significantly from the general population. i imagine others here have read "your money or your life" and "cashing in on the american dream, how to retire at 35." undoubtedly available in doc's bookstore!

[rayok]

I find myself frequently looking at this developing bull market, which I estimate has 40% upside (including interest ), and off-setting that with the risk of being short U.S dollar stocks, with a potential 50% downside. I may have to return my borrowed U.S. dollar stocks to the nice American who keeps refinancing his home to maintain ownership.

[Bearbones]

I will try Pee Brain,

 

Hypertiger has done some great work on the subject of compund interest, so I would refer you to his posts. I am not sure if his is an extereme view or the correct one, but you should check him out.

Compound interest is the lifeblood of investing and credit-based economies. It can work for you or against you. If you continue to borrow money at a rate above your income growth you will somday face an interest payment larger than your income. Ross Perot made that case in 1992 and garnered nearly 20% of the presidential vote. We faced, at that time, a public debt crisis. The Clinton years witnessed a build-up in private debt which was encouraged by Rubin and Greenspan to the point where we are witnessing a private debt crisis. the problem is, as Doug Noland illustrates, the process is out of control.

To re-liquify the financial system interest rates and credit growth must fall below the rate of inflation and growth to allow those variables to exceed the growth in compound interest. Even then the steamroller of compound interest will be bearing down on us.

The process I describe is deflationary as assets must be sold by the weaker among us to meet the compund interest bill. Inflation, as we have known it, is unlikely to show up for long as interest rates will rise and shut off attempts at recoveries.

We now have a deregulated financial system which implies that interest rates in the private sector will always be above the inflation rate. That was not the case in the 1970s. We had usury laws, fixed rates on deposits etc. that allowed borrowers to borrow below the rate of inflation and nominal growth.

There are other factors at work, but I hope you get the drift.

[MyGoldenStool]

(someone fired for showing up to work drunk and naked is not eligible to collect unemployment benefits; some other time, I'll tell you how I know this fact).

Sounds intriguing :wink2:

 

And thanks for the answers to my questions..

But someone who disappears outside for 1/2 hour at a time for smoke breaks (not regularly scheduled break periods) and received 3 written warnings for doing so prior to being fired was allowed to collect. Disputed the labor board's ruling and received a 2-page written refusal filled with unintelligible gobbledygook which only a trained legally deranged mind could decipher.

[Pee Brain]

I will try Pee Brain,

 

Hypertiger has done some great work on the subject of compund interest, so I would refer you to his posts.  I am not sure if his is an extereme view or the correct one, but you should check him out.

Compound interest is the lifeblood of investing and credit-based economies.  It can work for you or against you.

 

as i understand your post, you are discussing positive leverage of the past decades. in the past, you borrowed money and the growth and yield were greater than the interest rate and your equity compounded exponentially at a positive rate. currently, interest rates are declining, but growth and yields may be declining faster than interest rates - a setup for an exponential CONTRACTION or liquidity squeeze. few people would be max margin and long the stock market over the past few years, but if they were, they would have a return well below the margin interest rate.

 

theoretically, interest rates can only go to zero, but asset prices/values can decline beyond ZERO (decline in value). it seems that deleveraging (at least in NT and possibly LT) would be prudent in this scenario and perhaps a portion of the portfolio in gold or other assets that traditionally maintain their "store of wealth." is this what happened in japan where people didnt want to borrow money at "absurdly low interest rates?"

 

is this above fairly accurate?

[Rubadub]

Lets talk about a topic that is frequently mentioned but

seldom elaborated -- money management.

 

Since I see trading as a DEFENSIVE game, money

management first and foremost means NEVER putting

myself in a position which could do me so much harm that

I won't be able to recover.

 

Money mgmt to me means when I'm losing cut back

on size. SIZE KILLS!!!

 

If I have lost and my account is down. DON'T TRY

AND GET IT BACK ALL AT ONCE. Trade smaller.

Amateurs double up because they want to get

back fast. Get over it. IT'S GONE. Cut your size at least

in half or by two thirds or stop trading for a few days.

It's amazing how much perspective you can gain

in a few days and the mkt will be there when you

come back.

 

I have had some TERRIBLE drawdowns and losses

but so far I have always managed to come back and

move forward because I follow the advice above

and because I'm a pretty decent trader.

 

Most people try and make money easy and fast.

That's the wrong game to play.

Without RESPECTING the power of the mkts to

wipe you out and FAST you are ultimately DOOMED

because one day it will get you.

 

This mkt is TERRIBLY dangerous and none of us have

had an experience like this. A true secular bear can

kills both the longs and the shorts. Lower your expectations

and attempt to preserve capital, and in so doing

the profits should accrue.

 

Remind yourself of these things daily, ESPECIALLY when

you are winning. When I'm winning I'm hunting for

a place to exit and book the profits. I'm nervous not giddy.

 

And I have to remind myself of all this stuff cuz people

are primal beings so we must REINFORCE the rules against

which we naturally chafe.

 

That's why the Marines shave guys heads and break

down their identity and train them how to behave in spite

of human instinct because the enemy may not be something

out there in the bushes it may be ourselves.

 

I like trading and it's fun when we're winning but

never forget it's about surviving in the end not how much

you're gonna kick their ass.

 

But, as Dennis Miller says, that's just my opinion and I

could be wrong.

 

NOT!!!!

[BAREister]

Stool, Fleck posts on Cramer's website which is why HRFF initially signed up FUR it. He's since found UDDER reasons to stay there and is beginning to wonder about Mr Fleckenstein, who about a month or two ago was extolling the Japanese stock mkt, if The BARE recalls correctly, and we know what's happened to the NICKED!!!>>>DIE!!! since.

 

And then Fleck decided to go after the TRIAL LAWYERS, the S.O.B.

 

Fleck currently is in HRFF's DAWG house...

 

Anyway, Stool, HRFF will peruse what Fleck said of late over there per your request.

 

The BARE hardly bothers to read Fleck any more.