What if ... it is different this time?

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
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parvus
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Post by parvus »

nemo2 wrote:Wow, this guy's more depressing than Leonard Cohen. :cry:
WishingWealth wrote:One of the Youtube comments on a Cohen clip was:
"Leonard Cohen makes you feel happy to be miserable and depressed" :shock:
I was cheered up the other day to learn The Spy Who Came in From the Cold had been released on DVD. :D
Wovon man nicht sprechen kann, darüber muß man schweigen — a wit
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mudLark
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Re: The Gloom and Doom View of "...different this time&

Post by mudLark »

Courtesy John Mauldin
David Rosenberg wrote:1) Expect the worst recession in the post-WWII era
2) Capex is in a steep decline
3) Consumer spending down sharply; savings rate is soaring
4) Obama planning a $700 billion fiscal package
5) Housing market is not close to bottoming out
6) Fed has switched December meeting to a two-day affair

...Chairman Bernanke suggested in several speeches he gave back in 2002 and 2003, one of the deflation-fighting strategies would likely involve Fed action to nurture lower rates at the longer end of the yield curve.
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Post by kcowan »

In summary. Bill Gross said:
This time it's different.
Where have we heard that before? :lol:
For the fun of it...Keith
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Post by Nemo2 »

kcowan wrote:In summary. Bill Gross said:
This time it's different.
Where have we heard that before? :lol:
Zsa Zsa Gabor?
Exit, pursued by a bear.
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Post by kcowan »

Nemo2 wrote:
kcowan wrote:In summary. Bill Gross said:
This time it's different.
Where have we heard that before? :lol:
Zsa Zsa Gabor?
:lol:
or maybe
"This time it's different" are the four most expensive words in the investing language.— Sir John Templeton
For the fun of it...Keith
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Brix
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Post by Brix »

I'm 100% sure it's different.

Will someone please let me in on all the hows and whens of this difference? I want to make out like a bandit.
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Post by Slippy »

Done in late September so it is a bit old, but here is an interesting presentation Dimensinal FWIW.

Disclaimer: I'm not affiliated.

https://admin.acrobat.com/_a772887163/i ... thistimeus
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Post by mudLark »

Brix wrote:Will someone please let me in on all the hows and whens of this difference?
ISTM one way it's different is that henceforth anyone who expects another "someone" to do their thinking for them is extremely unlikely to "...make out like a bandit".

The other day I heard "someone" say words to the effect that 'yesterday's bubble was risk; tomorrow's is safety.' This, methinks, is at the root of why Sir John Templeton's sage advice, then, may not make sense going forward.
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Post by WishingWealth »

Could go in a number of threads.

In The Economist.
http://www.economist.com/opinion/displa ... extfeature
(And a few links to other interesting articles in the link)
Where have all your savings gone?
...
Nor has the bad news been confined to equities. This year the value of all manner of risky investments, from corporate bonds to commodities to hedge funds, has been clobbered. The belief that diversification into “alternative assets” could prevent investors losing money in bear markets has proved false. And of course housing, which many people counted on for their retirement nest-eggs, has lost value too (see article).

As a result, saving seems like pouring money into a black hole (see article). Any American who has diligently put $100 a month into a domestic equity mutual fund for the past ten years will find his pot worth less than he put into it; a European who did the same has lost a quarter of his money.
...
WW

BTW: I know I know, he's picking some specific beg/end points.
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parvus
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Post by parvus »

Global imbalances threaten the survival of liberal trade
The world has run out of willing and creditworthy private borrowers. The spectacular collapse of the western financial system is a symptom of this big fact. In the short run, governments will replace private sectors as borrowers. But that cannot last for ever. In the long run, the global economy will have to rebalance. If the surplus countries do not expand domestic demand relative to potential output, the open world economy may even break down. As in the 1930s, this is now a real danger.

To understand this, one must understand how the world economy has worked over the past decade. A central role has been played by the emergence of gigantic savings surpluses around the world. In 2008, according to forecasts from the International Monetary Fund, the aggregate excess of savings over investment in surplus countries will be just over $2,000bn (see chart).


[snip]
Surplus countries often enjoy contrasting their prudent selves with the profligacy of others. But it is impossible for some countries to spend less than their incomes if others do not spend more. Lenders need borrowers. Without the latter, the former will go out of business.

[snip]
As I have pointed out previously, the most interesting feature of the global imbalances has been the corresponding pattern of domestic financial imbalances. The sum of net foreign lending (gross savings, less domestic investment) and the government and private sector financial balances (the latter the sum of corporate and household balances) must be zero. In the case of the US, the counterparts of the net foreign lending this decade were, first, mainly fiscal deficits, then government and household deficits equally and, finally, government deficits, again (see chart). During recessions, the private sector retrenches and the government deficit widens. Similar patterns can be seen in other high-income countries, notably the UK. Housing booms helped make huge household deficits possible in the US, the UK, Spain, Australia and other countries.

So where are we now? With businesses uninterested in spending more on investment than their retained earnings, and households cutting back, despite easy monetary policy, fiscal deficits are exploding. Even so, deficits have not been large enough to sustain growth in line with potential. So deliberate fiscal boosts are also being undertaken: a small one has just been announced in the UK; a huge one is coming from the incoming Obama administration.

This then is the endgame for the global imbalances. On the one hand are the surplus countries. On the other are these huge fiscal deficits. So deficits aimed at sustaining demand will be piled on top of the fiscal costs of rescuing banking systems bankrupted in the rush to finance excess spending by uncreditworthy households via securitised lending against overpriced houses.

This is not a durable solution to the challenge of sustaining global demand.
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Clock Watcher
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Post by Clock Watcher »

It is different this time:

Decade performance of S&P500 with dividends reinvested:

1930s = +1%
1940s = +137%
1950s = +483%
1960s = +112%
1970s = +76%
1980s = +400%
1990s = +431%
this decade thus far = -31%

So unless we get an incredible year in 2009.
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The Bond Bubble

Post by mudLark »

That buzzing sound you hear is the de jour Copybook Heading from the eye-candy and talking-heads, who sit around impressive tables counting angels on the heads of pins, on various cable business news networks. Today they tell us of a new sign above the portal to hell; it is a warning of a Bond Bubble.

"All hope abandon ye who enter the bond market."*

Perhaps, perhaps not.

Today, the 10 year US Treasury is yielding about 2.2%. In 1997 the yield on the Japan 10 year bond dropped below 2%, and hasn't risen above this level since. Low interest rates may be with us for a long, long time. Unfortunately the shallow-minded eye-candy and talking heads may have failed to understand, or even to read, the footnote to the warning sign:
Whereat I thus: "Master, these words import
Hard meaning." He as one prepar'd replied:
"Here thou must all distrust behind thee leave;
Here be vile fear extinguish'd. We are come
Where I have told thee we shall see the souls
To misery doom'd, who intellectual good
Have lost.
" And when his hand he had stretch'd forth
To mine, with pleasant looks, whence I was cheer'd,
Into that secret place he led me on.
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Post by Bylo Selhi »

Clock Watcher wrote:So unless we get an incredible year in 2009.
Or we use some other arbitrary year to start each decade, e.g. 1925 to 1934, ... 1995 to 2004, 2005 to 2014.
Sedulously eschew obfuscatory hyperverbosity and prolixity.
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Post by desk4811 »

I'd like to know what economist has figured out how this is all going to work out. I think that things might start to get better. China is supposed to be putting about $600 billion U.S. into it's economy, which is what the system needs. China's real currency is the U.S.$. If anyone can spend money it shoud be a communist government.
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Post by jwr »

I think the 30 year U.S. treasury is a screaming buy here. I mean they will pay you 2.7% a year (in U.S. dollars to boot, the world's reserve currency) for 30 years plus there's zero chance of default since they're printing the money to pay everyone back right now and they own the printing presses!

And if you think that's a good deal listen to this... they'll even take your money for 3 months and pay you nothing to do it.
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Post by mudLark »

Illustrating some of life's more thrilling moments ...

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Meanwhile...
jwr wrote:I think the 30 year U.S. treasury is a screaming buy here.
Hmmm ... I wouldn't go that far personally. It may be a relatively safe short-term (two years) place to park some cash, if you keep an eye on it. After all 2.7% is better than the current rate of return on cash, and the real return ... well, who knows, do you?

If you do, know, then you might be wise to invest all your money, as well as any money you can borrow in HTD.TO.
jwr wrote:...there's zero chance of default since they're printing the money to pay everyone back right now and they own the printing presses!
It's not only ownership of the printing press that matters. It's also having the ability, and the will, to keep interest rates low, for as long as needs be.

ISTM the Canadian, US, UK and Australian Governments are beginning to express this will loudly and clearly. The rest (mainly the big two Euro zone nations) may eventually be forced to hop on the bandwagon.

IMO four horsemen presently loom large in the future economic shadows of the developed world: unemployment, debt, entitlements, and, the need to foster continued growth in developing economies (E.G. BRIC). ISTM the powers that be in these developed nations have collectively (especially in the Anglo sphere) decided to buy their way out of these problems. Hopefully, they would only do this if they had some kind of plan to deal with the possible consequences. ISTM the common-sense solution, the one best mitigating the dangers inherent in these problems, is low interest rates - for a long, long time.

By reducing repayments low interest rates will assist these governments to print or borrow the capital needed to create jobs; to stimulate industrial output; improve public infrastructure and stabilize their economies.

Long-term low interest rates will eventually reduce the psychological and real burden of personal and other indebtedness, in the face of asset deflation, and will allow a gradual increase in liquidity. For example, we may soon see credit card companies being forced to reduce their interest rates, thereby reducing the burden of credit card debt on consumers, thereby gradually increasing consumption.

Low interest rates, along with much tighter controls on commodity price and other speculation (the results of which methinks we are seeing in the energy and other commodity markets today), will force headline inflation to stay low, and may result in negative overall inflation for years. This would reduce the government burden for pension and other entitlements which, starting very soon (2011 at the latest), are going to commence increasing at an exponential rate. Also, BTW low interest rates will significantly diminish the retirement incomes of the boomer cohort, many of whom may be forced to subsist likewise, because they can only get 2% or 3% yield on their investments. In any good plan there has to be a sacrificial lamb, and in this plan ISTM the boomers, especially the lower middle class boomers, have been tapped for the role.

Low interest rates, improved liquidity and economic stability (through effective controls on price speculation) in the developed world will ensure governments in countries like India, China and Russia can continue to develop at an acceptable rate. This continued development will enable these governments to continue improving the lives of their people and reduce the likelihood of internal economic, political and social unrest.

IMO the last point is the single most compelling reason to keep interest rates low in the developed world until the present economic crisis is thoroughly fixed; because history shows us that internal economic, political and social unrest almost inevitably lead to war, and in a nuclear armed world low interest rates, high debt and impoverished boomers are preferable to low-yield ground and high-yield air burst tactical and strategic nuclear weapons exchanges over the Hindu Kush.

Then again, I may be wrong and it's not different this time. Perhaps, next year the global economy will stabilize; unemployment will fall drastically throughout the developed world; oil will go above $150 and the TSX will hit 20,000; Treasury rates will shoot up, right across the curve; inflation will come roaring back; those who are today crippled with indebtedness will suddenly feel an incredible lightness of being wealthy again, as the value of their assets (homes, stocks, cars etc) shoots up; the boomers will once again agonize over Tuscany or Provence; and the speculators will be welcomed back into the markets, encouraged to re-commence their efforts to suck the marrow from the very bones of all the other suckers. Perhaps ... but I'm from Missouri.
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Post by couponstrip »

Returns since Nov 21:

VTI ~19%
VEA ~23%
VWO ~35%

XIU ~8%
XEG ~18%
XFN ~0%
XBB ~3%

At least diversification seems to be working somewhat again....for one month anyway.
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Post by carnet »

If you think it is different this time then why not bet on it?

Just search for Depression and you can place your bet.

At the time of writing this the "US Economy in Depression in 2009" is currently trading above 50 (so, a greater than 50% chance). Incidentally, it's trading much higher than than either "Osama Bin Laden to be captured/neutralised by 31 Mar 2009" or "Bird Flu (H5N1) to be confirmed in the USA on/before 30 Jun 2009"
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Post by desk4811 »

I was reading that for the first time in about 50 years last month the U.S. population actually saved more money than it spent, by paying down their mortgages and credit. This is one sign that positive change is taking place. Although 50 years of borrowing is going to take a lot longer than a month to fix.
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What kind of recession is this?

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I'll throw this out there mostly for fun, but sometimes these kinds of questions can bring some surprising insight. Firstly, I know that all recessions vary in characteristics, but which recession/depression do you think this one most resembles?

- Would it be the 30s recession with a 15 to 20 year recovery rate? The arguments for this comparison include parallels with bank and insurance failures and the sheer scope of the decline. The arguments against this comparison are that we are not nearly feeling the same unemployment rates or pain as felt during those years and that that experience has provided valuable lessons regarding solving the problem.

- Would it be a 70s type recession with high unemployment and stagflation? I've heard some experts on BNN make the argument that this is the most comparable recession. I wish they were right.

- Would it be a Japanese type never-ending decline where some people who bought in the 80s are still waiting to break even. The arguments for this comparison are both that we are 15 years behind their age demographics and that it will take us a long time to dig ourselves out of this mess. I would argue that our economies are not that similar, given that Japan is mostly a manufacturing based economy. To say that our commodity based market won't rise over 20 years implies that China and other developing countries will also stagnate. I think that is unlikely.

Unfortunately, I tend to think the closest comparison is with the 1930's. Perhaps we're not feeling the same degree of pain, but its all relative considering our general living standard has increased since then. I think this stock market decline has already left the 70s style declines in its dust. The good news is that 1933, 1935 and 1936 experienced significant rallies.

What do you think?
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Post by RiffMaster »

In terms of cause, I think this situation resembles the 1970's and the 1930's the most because the nature of our current problems revolve around debt and inflation. This time, we could see the worst of both. Stagflation.
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Post by blonde »

What do you think?
Why the need to focus on whether it is worse, better, same, or different this time? Why the need to 'play' the 90%er-game? Why WASTE time and energy replaying thingies that most 90%ers entertain self for weeks, months, and years?

The Primary Aim is to get the Most with the Least...and move Forward in preparation for the next cycle. The 'Winner' will be Richer, and the 'Loser'...Kcuf-'im.

as an aside...it wud be worthwhile for the 'Losers' to step aside and clear the path for the Real-10%ers. There is Mega-Money to be 'had' and cycle time is paramount.

as an another aside...Dawg-eat-Dawg superscedes anything and everything.

Suck-it-Up...It will be Better for the Real-10%ers.

Never, ever trust a wannabee.
Sometimes the questions are complicated and the answers are simple...Dr Seuss

Be who you are and say what you feel because those who mind don't matter and those who matter don't mind...Dr Seuss
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Post by Spidey »

Why the need to focus on whether it is worse, better, same, or different this time? Why the need to 'play' the 90%er-game? Why WASTE time and energy replaying thingies that most 90%ers entertain self for weeks, months, and years?
The reason we want to study past history is to learn from it. Studying past crashes tends to show us that things do eventually get better.
as an aside...it wud be worthwhile for the 'Losers' to step aside and clear the path for the Real-10%ers. There is Mega-Money to be 'had' and cycle time is paramount.
What does that mean? "step aside." Does it mean to cash in their shares? In your opinion, how are the Real 10% reacting right now?
If life seems jolly rotten, then there's something you've forgotten -- and that's to laugh and smile and dance and sing. - Eric Idle
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