What if ... it is different this time?

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Re: What if ... it is different this time?

Post by mudLark »

John Mauldin wrote:...median income has slumped because a very large share of Americans can no longer find proper jobs.
"...something wicked this way comes."
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Re: What if ... it is different this time?

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The Economist poll of forecasters July 2013
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Re: What if ... it is different this time?

Post by mudLark »

It is both the same and different this time. Repeatedly allowing a few increasingly wealthy individuals to enslave and impoverish the many is our insanity; an insanity that for a post WW2 moment some of us thought had been corrected. Shame on us if we don't deal with this growing problem of obscene inequality soon.

It is different because by now we [should] know there is a better way.
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Re: What if ... it is different this time?

Post by Shakespeare »

It is different because by now we [should] know there is a better way.
Aux armes, citoyens! :?:

Not that Washington - or Wall Street - couldn't make good use for a guillotine.
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
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Re: What if ... it is different this time?

Post by mudLark »

Shakespeare wrote:Not that Washington - or Wall Street - couldn't make good use for a guillotine.
You're not paying attention, Washington (Wall Street's proxy) no longer uses the guillotine.
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Re: What if ... it is different this time?

Post by parvus »

Pour encourager les autres?
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Re: What if ... it is different this time?

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I keep coming across articles like this one who's main point seems to be that the current market rally is not at all similar to the late 90's. I must admit, it's making me a bit nervous...
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Re: What if ... it is different this time?

Post by Flaccidsteele »

If an individual believes that market timing is next to impossible and they happen to be a buy-and-hold investor, then does it really matter if it's different this time? They're not going to sell anyway.

With regards to inequality between the "haves" and "have-nots". I don't think 50k years of organized human civilization has figured how to solve it. All human societies since the dawn of man seems to have this issue. Societies all give it the appropriate lip service however. But it's more of a circular complaint-driven/venting discussion.
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Re: What if ... it is different this time?

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Flaccidsteele wrote:If an individual believes that market timing is next to impossible and they happen to be a buy-and-hold investor, then does it really matter if it's different this time? They're not going to sell anyway.
I plan to buy all the way down or up either way. I'm early enough in the accumulation phase that my rate of savings will overcome any paper loses pretty quickly. The hardest part might be reassuring my other half that we're on the right track ;) It still gives me jitters though, like watching a storm approach.
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Re: What if ... it is different this time?

Post by Bylo Selhi »

mcbar wrote:I'm early enough in the accumulation phase that my rate of savings will overcome any paper loses pretty quickly.
Accumulators should cheer low prices. Retirees, not so much.
The hardest part might be reassuring my other half that we're on the right track
If she buys stuff when it's on sale then she'll understand after you give her Warren Buffett's Quiz.
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Re: What if ... it is different this time?

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Bylo Selhi wrote: Accumulators should cheer low prices. Retirees, not so much.
My next chunk of cash is scheduled to be deployed at the end of the month, so I've got my fingers crossed. It's funny though, even knowing this, and hoping fervently for a massive market crash in the near future (sorry recent/soon to be retirees), it still "feels" better to watch my portfolio increase in value than to see it tank. Good thing I stick to my IPS rather than investing based on what "feels" good!

If she buys stuff when it's on sale then she'll understand after you give her Warren Buffett's Quiz.
Good reading! Thanks Bylo, I'll send it her way.
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Re: What if ... it is different this time?

Post by Flaccidsteele »

Flaccidsteele wrote:If an individual believes that market timing is next to impossible and they happen to be a buy-and-hold investor, then does it really matter if it's different this time? They're not going to sell anyway.

With regards to inequality between the "haves" and "have-nots". I don't think 50k years of organized human civilization has figured how to solve it. All human societies since the dawn of man seems to have this issue. Societies all give it the appropriate lip service however. But it's more of a circular complaint-driven/venting discussion.
I have always been dissatisfied with the explanations given to the collapse of human societies over humanity's history. I had always believed that inequality (and our inability to find a solution to it) was the primary cause of the collapse of human society. All societies complain and vent about this issue, but to this day, it remains unresolved. The following lends support for my confirmation bias:

Researchers Say Society Is Doomed, Though Not For Reason You Might Think
...But how, exactly, do powerful empires collapse, and why? Researchers now believe they've found an answer, one that has troubling implications for today - because we're clearly on the road to ruin.

The researchers' first task was overturning "the common impression that societal collapse is rare, or even largely fictional," as they wrote in their report, to be published in the journal Ecological Economics. In fact, they argue, the rise and fall of great social structures is so common a theme in human civilization - recurrent throughout history and worldwide in scope - that it's more the rule than the exception.

"The scenarios most closely reflecting the reality of our world today are found in the third group of experiments, where we introduced economic stratification," the researchers wrote, referring to uneven wealth distribution. "Under such conditions, we find that collapse is difficult to avoid."

http://www.huffingtonpost.com/2014/03/2 ... 01032.html

I continue to believe to this day that societal collapse is inevitable because our ego's desire to have "more" (more to show-off, more for our families, more to spend, more for retirement, more just to have more, etc.) will lead to the income inequalities that will lead to collapse.

I also believe that societies will always complain about inequality, but will as always, fail to find a solution and history will continue to repeat itself.
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Re: What if ... it is different this time?

Post by Shakespeare »

I've always felt that the next American revolution should be accompanied by two guillotines, one in Washington and one on Wall Street.
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Re: What if ... it is different this time?

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Shakespeare wrote:...the next American revolution ...
Not in my lifetime.

Revolts against the rich are rare, and when they do happen, they rarely succeed. After all, the rich have the money to buy "muscle", and to bribe key potential leaders of the uprising, and to control the media.

Much more likely is conflict between nations, driven by shortages of water, and eventually food.

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Re: What if ... it is different this time?

Post by parvus »

To be just a little bit cynical, the First World War absorbed revolutionary impulses into a nationalist call for mass slaughter. The revolutions that ensued were generally (but not always) sparked by food crises and an aura of impending defeat, which fatally affected the legitimacy of the hitherto leaders.

In other words, less a revolution than a collapse of leadership, an opportunistic void -- in Germany, France, Russia, Austria and Hungary, and a few years later, Italy.

I'm hesitant to extend Western experiences to the world beyond, but it seems that revolutions begin with bread riots the authorities can't cope with, despite their promises, and the authorities lose their nerve, and thus lose the non-Praetorian guard.

To be clear, revolution is not the outcome of civil war; that's merely dividing up the spoils. But revolution can instigate civil war.

The distinction is important. Revolution is often inspired by basic wants the regime has failed to provide: bread and an end to war. There are overlays, religious and ethnic nationalism, for example, that heighten the tension. Sometimes they are caparisoned in the rich garb of democratic language. But these are populist, rather than popular uprisings.

Since the overthrow of the absolutist kings, by the folks who had economic power, I really don't think we've had something that could be called a revolution, except in the overturning of the elite in the aftermath of a lost war. Instead we've seen regimes divided in the face of economic protest -- unable to buy it off, nor to clamp down -- and thus they fall, allowing for a recirculation of elites, political, military or otherwise.

In other words, it's not economic inequality that rouses people, but a failure to deliver the goods as promised.
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Re: What if ... it is different this time?

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Not sure where to post this. Why not here?

New York Times
Median per capita income was $18,700 in the United States in 2010 (which translates to about $75,000 for a family of four after taxes), up 20 percent since 1980 but virtually unchanged since 2000, after adjusting for inflation. The same measure, by comparison, rose about 20 percent in Britain between 2000 and 2010 and 14 percent in the Netherlands. Median income also rose 20 percent in Canada between 2000 and 2010, to the equivalent of $18,700.

The most recent year in the LIS analysis is 2010. But other income surveys, conducted by government agencies, suggest that since 2010 pay in Canada has risen faster than pay in the United States and is now most likely higher. Pay in several European countries has also risen faster since 2010 than it has in the United States.
The suggestion is that middle class families are now better off in Canada than in the U.S. That may or may not be true. International comparisons are always tricky. Especially so in this case where health care is funded so differently.

But the more interesting point for me is this independent finding that between 2000 and 2010 the median income per capita has increased by about 20%, and that it has kept rising since then.

Another pointer that the Canadian middle class is not in crisis.

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Re: What if ... it is different this time?

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ghariton wrote:But the more interesting point for me is this independent finding
The data in today’s article on income comes from LIS, a group that maintains the Luxembourg Income Study Database. Staff members at LIS — based in Luxembourg and at the Graduate Center of the City University of New York — gather data on household income from around the world and harmonize the statistics, so that numbers from different countries can be compared. Government agencies typically conduct the underlying income surveys.
I wonder what the income rise should be? I'm guessing productivity is the most important factor in most economies but what about terms of trade, ie the price for what we can sell our production, mainly oil in our case.

So lets ignore compounding and say productivity was 2% from 2000 to 2010. Does everyone get 2% richer? or is this shared between capital and labour? What about with terms of trade? Let's just say the dollar value per unit of our exports went up the same 2%. Who gets that money? Who should get the money?

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Re: What if ... it is different this time?

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newguy wrote:I wonder what the income rise should be? I'm guessing productivity is the most important factor in most economies but what about terms of trade, ie the price for what we can sell our production, mainly oil in our case.

So lets ignore compounding and say productivity was 2% from 2000 to 2010. Does everyone get 2% richer? or is this shared between capital and labour? What about with terms of trade? Let's just say the dollar value per unit of our exports went up the same 2%. Who gets that money? Who should get the money?
The first problem is that the income increase is a median. To reconcile to the other factors, you would need a mean.

I;m assuming you mean labour productivity. That's total GDP (measured in real terms) divided by total hours worked, and then yearly growth in this ratio. That of course is growth in a mean quantity.

In theory, growth in wages should equal growth in labour productivity. But empirically that only holds over very long periods of time. In the U.S. at least, it seems to have broken down for the last few decades. Still, to answer your question, in Canada a 2% growth in labour productivity should all go to labour. Of course, the distribution of it is another matter.

Changes in terms of trade are, to a first order, changes in prices. That should be picked up in inflation (or deflation) and so shouldn't impact real GDP or hours worked. Of course, there are second order effects -- workers shift jobs to where nominal wages are higher -- and these should be a boost to labour income, but I would expect it to be relatively small.

Changes to capital income reflect two factors -- changes in the productivity of capital (affecting the risk-free return), and changes in the amount of risk borne by investors. As we know, that has been trending down recently. Perhaps the risk premium has been changing.

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Re: What if ... it is different this time?

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ghariton wrote:in Canada a 2% growth in labour productivity should all go to labour. Of course, the distribution of it is another matter.
I take your meaning to be the distribution amongst the labourers.

What if I own a business and I whip the employees to work 2% faster. Are you suggesting that morally they should get 2% more, or that there's some law of economics that makes it so? I guess the owner may be considered labour as well but I consider him getting return on capital. I just don't think they can both get 2% more, or maybe they can :?

An owner could also invest in better means of production and then who gets the spoils?
Changes in terms of trade are, to a first order, changes in prices. That should be picked up in inflation (or deflation) and so shouldn't impact real GDP or hours worked.
I'm talking about exports so it wouldn't be our inflation. Or does the GDP deflator measure changes in export prices somehow. I just wondering about the guy who used to dig 1 barrel of oil out of the ground for $20, who can now get $100 for the same work. How does that $80 get shared out?

What I'm really getting at in all this is in response to your assertions that the middle class is doing fine since they have real income gains. My point is we should, but it needs to be shared equally or it's still a loss. So when you say we've had 2% annual income gains, I don't know if it's good or bad.

I think real GDP has increased by 26% but incomes only by 20%. Maybe it should be per capita, I get 13% increase for that.

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Geography= Canada
Prices= Chained (2007) dollars
Seasonal adjustment= Seasonally adjusted at annual rates
Estimates= Gross domestic product at market prices
1999 Q4 1,280,980 30.77 million = 41631
2010 Q4 1,612,494 34.13 million = 47246
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Re: What if ... it is different this time?

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newguy wrote:I'm talking about exports so it wouldn't be our inflation.
Let's take a grossly oversimplified example. Suppose that one oil-field worker produces the equivalent of one barrel of oil a day, using the standard equipment and taking oil out of the ground. Suppose that oil is selling on world markets for $100 a barrel. The other $50 goes to the owner of the oil company, who in turn pays $25 in royalties and keeps $25 to cover depreciation of the equipment and return on his investment.

Now suppose that the world price of oil doubles to $200. Nothing else changes in the short run.

The immediate consequence is that the oil company's profits go up by $100. No additional oil is produced, no additional hours are worked, productivity doesn't change, inflation doesn't change (at least not domestically). Oil companies will each look to increasing its output -- after all, producing oil is now very profitable --by obtaining more leases, purchasing more equipment, and hiring more oil workers. They will bid up wages in the oil sector, trying to poach workers from one another after all, a worker is now worth $150 an hour (but may receive a bit less). Meanwhile, oil prices domestically will drift upward toward the new world oil price, and so users of oil products will also see price increases. This produces pure inflat6ion, i.e. no quantities have changed, only prices.

Longer term, there will be changes in quantity terms as well. Oil companies' higher wages which in turn will draw in new workers in from other sectors. To keep their workers, other non-oil-sector producers will have to increase their wages too. This will result in fewer workers there, so lower output, and also higher prices. As well, more marginal oil fields become profitable and so are exploited. But oil is harder to produce there, say a worker can produce only 0.5 barrels per hour. So average labour productivity can actually drop, say to 0.75 per hour, all the while that wages increase. Note that, longer term, the wage will be lower than initially, because of increased competition from other workers. Maybe it will settle to a new level of $75, say (remember that his average productivity has dropped). So $75 for the worker and perhaps $50 for the oil company. Where does the other $75 go? To the entity collecting royalties, up from $25.

So everyone in the oil patch will be better off. In other parts of the economy, it will depend. Their wages will have gone up, especially if they have the skills to redeploy to the oil sector, or could easily acquire them. Their wages will have been close to stagnant otherwise. But they all will suffer the inflation caused by higher oil prices. Where that comes out on balance is an empirical question.
Or does the GDP deflator measure changes in export prices somehow.

Not directly. Remember that GDP is domestic. However, to the extent that there are indirect effects, yes, they will be captured, including the price of oil used domestically.
What I'm really getting at in all this is in response to your assertions that the middle class is doing fine since they have real income gains. My point is we should, but it needs to be shared equally or it's still a loss. So when you say we've had 2% annual income gains, I don't know if it's good or bad.
Yes, distribution matters. Other studies suggest that income distribution in Canada, as measured by the Gini coefficient, has been pretty stable over the last ten or fifteen years, after becoming more unequal in the 1980s and 1990s.

But tracing through increases and decreases for different quintiles or deciles is more information than the average person wants to absorb. So many commentators talk of "average" (misleading) or "median" incomes and their evolution over time. That's what I was commenting on.

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Re: What if ... it is different this time?

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Globe and Mail:
Take manufacturing, for instance. According to statistics kept by the U.S. Bureau of Labour Statistics, Canadian unit labour costs rose by 67.6 per cent in U.S. dollar terms between 2002 and 2010, while south of the border, they fell by 10.8 per cent. Needless to say, this puts Canada at a huge competitive disadvantage and illustrates the dilemma our country is facing.

<snip>

Mr. Watt says that the global financial recession did not have the deleterious impact on wages in Canada that many suspect. In fact, except for a short period in the immediate shadow of the market collapse, real wages here continued to grow. That was not the case in the United States, opening up even more of a wage gap between the two countries. Since 2009, per-unit labour costs in Canada have increased 16.9 per cent over those in the States, according to Statistics Canada. Indeed, this might be an underlying factor in recent analysis showing that Canada’s middle class is now richer than its U.S. counterpart.
Underlining yet again that generalizations from the U.S. experience to Canada are dangerous.

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Re: What if ... it is different this time?

Post by Flaccidsteele »

ghariton wrote:Underlining yet again that generalizations from the U.S. experience to Canada are dangerous.
I agree. Still don't understand why individuals keep pointing to the US as a foreshadowing of things to come. If the future were so easy to predict, we'd all be billionaires.
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Re: What if ... it is different this time?

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ghariton wrote:Yes, distribution matters. Other studies suggest that income distribution in Canada, as measured by the Gini coefficient, has been pretty stable over the last ten or fifteen years, after becoming more unequal in the 1980s and 1990s.
Doh! I forgot about the gini coefficient. I just wanted one statistic to know if the distribution of national income gains were being distributed evenly.

But if I think about it, a high static gini just means the rich keep getting richer. It's not change in gini but the level. If something like 50% of the income goes to the top 10% then 50% of the income gains also have to go to the top 10%.

Does that mean the gini for wealth (available on wiki) also shows the same characteristics?

Canada has some data for incomes but very little for wealth.
Gini coefs for income and my est. for wealth
Gini coefs for income and my est. for wealth
They have the last 3 wealth surveys and it seems that the wealth pie is unchanging. Which just means that since 20% have 70% of the money, they also have 70% of the wealth gains. Most studies show very little income mobility but they don't necessarily have to be the same people in the top 20%.
cumulative wealth distibution, 45 deg. is evenly distibuted.
cumulative wealth distibution, 45 deg. is evenly distibuted.
Canadian unit labour costs rose by 67.6 per cent in U.S. dollar terms between 2002 and 2010, while south of the border, they fell by 10.8 per cent.
Sounds like the scenario you presented for higher priced oil.

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Re: What if ... it is different this time?

Post by hamor »

The OP of the thread referred to a market downturn of 2008, while "it's different this time" is more likely to be used in times of bubbles, IMO.

Clearly 2008 crisis is behind us, but what lies ahead..? (I know, I know, we don't know, but it's fun to ponder, N'est-ce pas?)
We had crazy returns in 2019, it's been 10 years since 2008-9, investors are reaching for yield, for growth...

NASDAQ is at 9K, while 2000 peak was 5K
Many tech companies have ridiculous P/E. AMZN is at 83.

Any thoughts?
"Speculation is an effort, probably unsuccessfully, to turn a little money into a lot. Investment is an effort, which should be successful, to prevent a lot of money from becoming a little." Fred Schwed " Where are the Customers’ Yachts?"
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