What if ... it is different this time?

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor.

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

Postby ghariton » 18 Jul 2010 12:47

Meanwhile, everything is more complicated than it first seems:

As costs have risen in China, long the world’s shop floor, it is slowly losing work to countries like Bangladesh, Vietnam and Cambodia — at least for cheaper, labor-intensive goods like casual clothes, toys and simple electronics that do not necessarily require literate workers and can tolerate unreliable transportation systems and electrical grids.

Li & Fung, a Hong Kong company that handles sourcing and apparel manufacturing for companies like Wal-Mart and Liz Claiborne, reported that its production in Bangladesh jumped 20 percent last year, while China, its biggest supplier, slid 5 percent.

“Bangladesh is getting very competitive,” William Fung, Li & Fung’s group managing director, told analysts in March.

The flow of jobs to poorer countries like Bangladesh started even before recent labor unrest in China led to big pay raises for many factory workers there — and before changes in Beijing’s currency policy that could also raise the costs of Chinese exports. Now, though, economists expect the migration of China’s low-paying jobs to accelerate.


Two points from the quote:

(1) Big pay raises for Chinese factory workers -- soon they will have both the money and the desire to spend it on consumer goods and services

(2) Economic relationships keep changing in non-linear ways -- extrapolating existing trends is a mug's game -- but many feedback loops tend to stabilize things

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

Postby marty123 » 18 Jul 2010 20:43

ghariton wrote:Two points from the quote:

(1) Big pay raises for Chinese factory workers -- soon they will have both the money and the desire to spend it on consumer goods and services

Does it not also mean big inflation? When we outsourced all of our manufacturing to China, we bought a few years of discounted prices, but it's a matter of time before 10%+ Chinese inflation makes their widgets as expensive as if we manufactured them here. Problem is, we won't have the chance to easily repatriate manufacturing when that happens.

In the service industries, it's already been happening in India, which is why large outsourcers have been moving their call centers to cheaper places like the Philippines. The problem with heavy industry and other manufacturing is that these plants and the manufacturing know-how are not very portable.
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Re: What if ... it is different this time?

Postby ghariton » 19 Jul 2010 02:11

marty123 wrote:Does it not also mean big inflation?


Indeed.

Longer term, I think that we will have a shortage of commodities, especially energy-related ones, and consequent price pressures from there as well.

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

Postby Shakespeare » 19 Jul 2010 13:11

One thing that is different this time is the monstrous Department of Homeland Security.

And you gotta figure it sucks a noticeable amount (1%?) out of US GDP in lost productivity - now and in the foreseeable future....
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Re: What if ... it is different this time?

Postby newguy » 21 Jul 2010 13:12

ghariton wrote:I much prefer John B. Taylor to John R. Taylor.

Careful, he may be going over to the dark side
If we’re not careful—and less spendthrift—the U.S. economy will be heading for a state of permanent recession, argues Stanford economist John B. Taylor.


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

Postby kcowan » 18 Aug 2010 13:22

Image
So a retracing to 500 looks just like a small blip in forward progress over the decades. From this perspective, it might be like the dip in October 1974. That was the final dip of a triple dip. And the sideways movement lasted from Feb/66 until Mar/78 or Dec/68 to Aug/82.

Of course back then, we had just begun to debase our currency by adandoning the gold standard. Now we are really good at it!
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Re: What if ... it is different this time?

Postby newguy » 18 Aug 2010 13:27

kcowan wrote:Of course back then, we had just begun to debase our currency by adandoning the gold standard. Now we are really good at it!

So you should look at inflation adjusted charts.
Image

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ps. It gives me a headache to find 500 on a log chart but that last dip was to 666.
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Re: What if ... it is different this time?

Postby big easy » 18 Aug 2010 18:33

newguy wrote:ps. It gives me a headache to find 500 on a log chart but that last dip was to 666.


Just noticing that in 1982, it took over 20 years to regain the old "real" peak of 1968. In 1932, it took more like 30 years to regain the 1929 high.

On the otherhand, this might be a good time for 'mericans to retire if they have any savings left. We're ten years in and still near the bottom. How's that for good news. :shock:
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Yes, it is different this time. So what?

Postby mudLark » 06 Dec 2010 16:09

For the past six months it has become very clear that the answer to my original 2008 question is a resounding yes. Of course, there still exists a loud chorus of denial from the "Goldilocks recovery ..." pundits - whose increasingly feeble rationale remains only that "...it's never different this time". Some of these pundits are now telling us that the crisis has been averted, the US economy has recovered and growth has resumed, but, it seems that for the most part any growth the US economy has seen in the past two and a half years is in the bottom-line; productivity growth which in turn has only added to the overall contraction in the economy -- especially in terms of employment. Top-line growth still remains illusive in the US, Canada and most of the OECD. Meanwhile, without a lot of top-line growth the real problem, debt, gets "kicked down the road".

What has also become clear is that supply-side pundits are finding it increasingly difficult to substantiate their failed philosophy in the face of what is obviously now a demand-side problem. The "New Normal" includes austerity (increasingly imposed on millions), increased savings and an increasing retirement age. It seemingly excludes rampant consumption and debt. Fortunately, at least one of the supply-siders seems willing to acknowledge this reset. So much wisdom but is it enough in this increasingly polarized society?

Look, what is obviously different this time is firstly the true magnitude of the problems the 2008 Credit Crisis has wrought on the balance sheets and economies of the OECD. Secondly, it seems to be becoming increasingly clear that what is really different this time is how long it is going to take to recover from these problems. In 2008 I figured about a decade and determined that it would be at least 2 or 3 years (2010/11) before I ventured into equity markets again. More recently I'm not so sure.

The real challenge I have found during the past year has been trying to assign reasons for what is really going on in North American financial markets. It is obvious to me that these markets, especially US equity markets are more accurately correlated to hope than to any discernable future economic or corporate performance. The magnitude of this deviation is IMO largely unknown to anyone. Likewise, it is obvious to me that the yield curve no longer accurately indicates the direction of future economic growth -- ISTM with all the uncertainty the yield curve should, at best, be flat, or even slightly inverted, which it cannot be with a ZIRP. The magnitude of this deviation is probably about +1% at the long end.

I have long accepted that since 2009 the stock and bond markets are being manipulated to a far greater degree than in normal times. I have also accepted that this is not necessarily a bad thing. What I don't know (for certain) is: what goal is driving this manipulation? when is likely to end? and what the likely result will be when it does end?

Recently, I have begun to see what (in large part) I believe may be really driving this manipulation of US financial markets. IMO it's mostly about a massive shortfall in US Corporate, State and Municipal and probably other (Federal) pension funds. ISTM they have already begun to leverage the future by selling pension bonds, and are perhaps paying today's obligations with this money borrowed at low interest rates, meanwhile they are likely investing whatever else they can in higher yielding stock and corporate bond markets. ISTM they can only do this if they are fairly certain of a (POMO induced) return and, disconcertingly, ISTM many may be poised to crystallize those returns at or about the same future moment.

If I'm even half right about the goal, then the when and the result become much clearer.
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Re: Yes, it is different this time. So what?

Postby tidal » 06 Dec 2010 16:48

mudLark wrote:... pundits - whose increasingly feeble rationale remains only that "...it's never different this time"...
Heh. Nice turn of phrase there.

We've all dutifully read that, as investors, our emotions are our enemy. And that we must master those damaging emotions. And one of the mantras for doing so is Templeton's “The four most dangerous words in investing are 'This time it's different.'”

So, yeah, thus successfully inoculated, we come to believe instead that "it's never different this time". Which will be great - until it IS different this time. And then, it won't be our emotions that are betraying us, but instead an utterly false paradigm ("It's never different this time!") that prevents us from apprehending reality.

It IS different this time. It's SO different than anything Templeton apprehended as to be laugh-yourself-silly-then-weep. In fact, Templeton's entire investing career itself spanned a highly unusual investment-return-regime. And we're supposed to use that as the template forevermore. :cry:

While I differ on exactly what makes this SO different, it's an important insight. Unfortunately.
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Re: What if ... it is different this time?

Postby tidal » 06 Dec 2010 17:15

Charles MacKay, Extraordinary Popular Delusions and the Madness of Crowds, 1841.: "Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one."

Bonus curiousity: Sting, The Soul Cages ("All This Time"), 1991.: "Men go crazy in congregations. They only get better one by one."
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Re: What if ... it is different this time?

Postby ghariton » 07 Dec 2010 00:25

The IMF's current Global Stability Report, as of November 2010.

The OECD's Outlook as of November 2010

Armageddon is not yet in sight.

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

Postby mudLark » 07 Dec 2010 12:28

St. George. The Armageddon Slayer. :twisted:
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Re: Yes, it is different this time. So what?

Postby mudLark » 07 Dec 2010 13:28

Meanwhile...
On 7th December 2010 David Rosenberg wrote:Since the first cut in the Fed funds rate on September 18, 2007 …

• The S&P 500 has gone from 1,520 to 1,223.
• The unemployment rate has gone from 4.7% to 9.8%.
• Industry capacity utilization rates have gone from 81.5% to below 75%.
• The 10-year note yield has gone from 4.5% to below 3%.
• Housing starts have gone from 1.183 million units to 0.519 million.
• Median real estate values have gone from $210,500 to $170,500.
• Core inflation has gone from 2.1% to 0.6%.

...we again highlight the appropriate SIRP [Safety and Income at a Reasonable Price] strategy for such an environment:

1. Focus on safe yield: High-quality corporates (non-cyclical, high cash reserves, minimal refinancing needs). Corporate balance sheets are in very good shape.
2. Equities: focus on reliable dividend growth/yield; preferred shares (“income” orientation).
3. Whether it be credit or equities, focus on companies with low debt/equity ratios and high liquid asset ratios — balance sheet quality is even more important than usual. Avoid highly leveraged companies.
4. Even hard assets that provide an income stream work well in a deflationary environment (ie, oil and gas royalties, REITs, etc…).
5. Focus on sectors or companies with these micro characteristics: low fixed costs, high variable cost, high barriers to entry/some sort of oligopolistic features, a relatively high level of demand inelasticity (utilities, staples, health care — these sectors are also unloved and under owned by institutional portfolio managers).
6. Alternative assets: allocate significant portion of asset mix to strategies that are not reliant on rising equity markets and where volatility can be used to advantage.
7. Precious metals: A hedge against the reflationary policies aimed at defusing deflationary risks — money printing, rolling currency depreciations, heightened trade frictions, and government procurement policies.
It should always be remembered that whether acute or obtuse the angle of reflection is equal and opposite to the angle of incidence.
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Re: Yes, it is different this time. So what?

Postby newguy » 07 Dec 2010 13:35

mudLark wrote:It should always be remembered that whether acute or obtuse the angle of reflection is equal and opposite to the angle of incidence.

You're starting to sound like blonde :lol: .

Rosie's much happier today.

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Re: Yes, it is different this time. So what?

Postby mudLark » 07 Dec 2010 13:41

newguy wrote:You're starting to sound like blonde :lol: .
Image

Added later: Perhaps it's because I read this and discovered that (probably briefly) I'm a 1%er.
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Re: What if ... it is different this time?

Postby newguy » 14 Dec 2010 15:51

So they make double minimum wage. I bet they could get people to do these jobs for $10/hr if there was no union.

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

Postby mudLark » 07 Mar 2011 18:12

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

Postby Shakespeare » 07 Mar 2011 19:15

Meanwhile, from Maclean's blog:
The U.S. Economic Policy Insititute offers this fascinating (but also scary) interactive graph. Set the slidders to the dates 1970 and 2008, and it reveals that while average incomes in the U.S. grew by US$12,320, all of the growth went to the richest 10 per cent of the population. Income for the bottom 90 per cent actually declined over that time.


The graph is here: http://www.stateofworkingamerica.org/pa ... 0&end=2008

And, continuing the Maclean's link,

A report by the Canadian Centre for Policy Alternatives [Dipper-connected IIRC - S.] found that between 1997 and 2007, the richest 1 per cent of Canadians (246,000 people) accounted for 32 per cent of all income growth.


That report is at http://www.policyalternatives.ca/sites/ ... ercent.pdf .

Warning - anecdote: There was much lower Caucasian-featured pedestrian traffic and also much lower car traffic in Waikiki when I was there a couple of weeks back. But a high-end Hilton resort near Kona seemed to have lots of new buildings, according to the bus tour driver.
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Re: What if ... it is different this time?

Postby Shakespeare » 03 Aug 2011 03:50

The Second Great Contraction
But the real problem is that the global economy is badly overleveraged, and there’s no quick escape without a scheme to transfer wealth from creditors to debtors, either through defaults, financial repression or inflation....

The aftermath of a typical deep financial crisis is something completely different. As Prof. Reinhart and I demonstrated, it takes an economy more than four years just to reach the same per capita income level that it had attained at its pre-crisis peak. So far, across a broad range of macroeconomic variables, including output, employment, debt, housing prices and even equity, our quantitative benchmarks based on previous deep postwar financial crises have proved far more accurate than conventional recession logic....

I have argued that the only practical way to shorten the coming period of deleveraging and slow growth would be a sustained burst of moderate inflation, say, 4 per cent to 6 per cent for several years....
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Re: What if ... it is different this time?

Postby Shine » 03 Aug 2011 04:34

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

Postby Wallace » 04 Aug 2011 11:04

Thanks for the link, Shakespeare.
the real problem is that the global economy is badly overleveraged, and there’s no quick escape without a scheme to transfer wealth from creditors to debtors, either through defaults, financial repression or inflation.

Looks like we're in for another credit squeeze like 2008. Whether it will be more or less severe remains to be seen but we seem to be looking at he same painful, step by step erosion of the value of the equity markets, more ominous because we are in the third quarter, traditionally the most common time of the year for corrections. I'm about 25% in cash right now, and have even lightened up on gold stocks, which in 2008 dropped the same as every other segment of the equity market because of tightening of credit. Without QE3, which I think would be a disaster for other reasons, I don't see any other path for the market.

Governments, for example, could facilitate the writedown of mortgages in exchange for a share of any future home-price appreciation.

I never understood why governments gave all the money to the very people who caused the crisis in the first place, rather than going directly to the people who were victimized. It would have been a fairer, more politically acceptable, and more financially-sound process for the government to have gone to each mortgage holder who was in trouble and negotiated a reduction in the total value of the mortgage to where the homeowner had the ability to pay. In return, the government would become part owner of the property, to be repaid on the house sale at some time in the future. The government would then negotiate repayment of this lump sum to the mortgage holder to reduce the total mortgage, perhaps giving the mortgageholder a percentage "haircut" in the process to punish him for his stupidity.
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Re: What if ... it is different this time?

Postby Shakespeare » 04 Aug 2011 11:20

Well, as I posted upthread, when I saw the vacant streets and sidewalks in Waikiki in February, I knew the party was over in the US. The only North American tourists apparent were wearing Saskatchewan Roughriders sweatshirts. :wink:

The US hangover and cleanup will take several years. I don't think Canada can escape the effects entirely, although they will be lessened by resource exports.
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Re: What if ... it is different this time?

Postby kcowan » 04 Aug 2011 13:05

In PV this winter, the tourists were 40-40 US-Canada and 20 other. Used to be that the US was 5:1 versus Canada.
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