Things to worry about

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ghariton
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Things to worry about

Post by ghariton » 04 Feb 2016 17:15

Most of us enjoy worrying about impending financial crises. But could things get worse than they are today? This thread is intended to highlight some of the negatives coming up. First on the list:

Brexit
British attorneys say the country’s possible departure from the European Union would bring economic chaos -- even as they benefit from increased billing hours from briefing clients about the move.

The country is moving toward a referendum on its EU membership, a vote that Prime Minister David Cameron said Wednesday may come as early as June 23.

<snip>

A vote to leave Europe would mean “there is a very good chance we will be going from Great Britain to Little England as the Scots would most likely want to leave the U.K.," Morley said. “It’ll make us even less relevant to the rest of the world. Why would a country with less than 1% of the world’s population -- 3% of the world’s GDP output -- believe it is better off on its own rather than as part of a market of 500 million people?"

<snip>

We will be throwing away 43 years of established business, regulatory and political conventions,” Morley said. “Do you think they’ll be able to negotiate all that in just two years?”
Next up: Independence for Cataluna?

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Re: Things to worry about

Post by ghariton » 05 Feb 2016 13:12

Negative interest rates
The Bank of Japan's move to negative interest rates for discretionary bank balances is causing turmoil.
Nomura Asset Management Co. stopped accepting investments into some money-market funds, joining 10 other managers in suspending such accounts as the $14.1 billion industry grapples with the negative interest rates introduced by the Bank of Japan last week.

The brokerage said Friday it will suspend orders for its Money Management Fund and Free Financial Fund from Feb. 9 following the BOJ decision to set the rate on some excess reserves held by financial institutions at the central bank at minus 0.1 percent. Ten firms including Daiwa Asset Management Co., Mitsubishi UFJ Financial Group Inc., Mizuho Asset Management Co. and Resona Bank Ltd. have made similar announcements.

The BOJ joined monetary authorities around Europe on Jan. 29 in betting setting rates below zero will reduce borrowing costs for companies and households, drive demand for loans and encourage investment in higher-yielding assets. Yields on Japanese government bonds with maturities as long as eight years have turned negative, while the level for the benchmark 10-year security dropped to a record 0.035 percent on Friday in Tokyo. The Ministry of Finance this week scrapped a sale of 10-year fixed-rate notes aimed at individual investors.
That should play havoc with individuals' retirement plans.

Negative interest rates in Canada? With the state of the economy and the Bank of Canada running out of manoeuvering room, it's not impossible. Not a pleasant prospect.

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Re: Things to worry about

Post by AltaRed » 05 Feb 2016 14:04

It will cause yet more upward pressure on blue chip dividend paying equities as investors flee fixed income. More artificial support inflating valuations and potentially a windfall for market linked GICs and Managed Payout funds. Most investors have no idea what they are getting into with these latter finessed products.
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Re: Things to worry about

Post by SoninlawofGus » 05 Feb 2016 14:51

This thread title is interesting because I've been trying to do the opposite: find fewer things to worry about. In recent years, I've tried to follow the advice of William Bernstein, who basically argues that if we think we've got it bad now, just look at all the wars, depressions, and hyperinflation over the past century, and somehow we muddled through. Not long ago, we had rampant inflation and the cold war. Even against that backdrop, the 2008-9 crisis scared me enough to take a hard look at the fragile state of the global financial system, and for a time I convinced myself that "hard assets" might very well be the way to go. Even now, I still hold a small bit of gold, but not for the same reasons I did 6-7 years ago.

Back then, the harder I looked at our whole financial system, the more worried I got. It's not hard to make a long list: the rising never-ending government debt, falling and now negative interest rates, quantitative easing, derivatives, fractional reserve banking (which arguably has become zero reserve), securities lending, fiat currencies, the Grexit, subprime, the demise of the Euro, the demise of the US dollar, oil prices exploding, oil prices plummeting, overpriced Canadian real estate, terrorism, sluggish or negative growth, not to mention a whole bunch of underfunded insurance and retirement schemes. And then there was that 50% drop in the S&P in a short period of time. I could go on and on. I suppose that is why stocks are said to "climb a wall of worry." There's always been plenty to worry about since I've been alive. And maybe some are of these threats are really, really bad, truly "end of days" kinda stuff.

But, and maybe just because I'm getting a little older, I've been moving trying to move beyond the gloom and starting to see things in another light. I now take the view that human psychology is a big part of all things financial. It's clear to me, logically, that our whole financial system is an elaborate shell game -- the shuffling of funds and debt from place to place, easily seen as a house of cards, even a pyramid scheme. Against all this, governments and financial institutions try to act as if the whole thing is somehow stable. It's not, but then again it is because it has to be. To a degree, we collectively believe what we want to believe and make that happen. Money is money because we believe it and even that is always changing, especially now in our increasing cashless society. Try to pass a Voyageur dollar to some kid working at the Dollarama. That is not money to a whole generation of people. But maybe some of these myths we live by are not bad things and help to ensure stability.

Not that long ago, Brazilian hyperinflation eventually got under control mostly because people wanted to believe it was so. Same thing happened in Germany in the 20s. From that perspective, "hard currency" (such as gold) is nothing more than just another set of beliefs in the age-old perspective of what constitutes money or value. I'm still waiting for inflation, and have little doubt it will return. That said, more than a few years ago, many of us on this board were sure that QE would trigger inflation and that interest rates were as low as they could go, and now we're facing the prospect of negative interest rates and maybe the Brexit. Those could be a harbinger of market disaster or a 100% increase in stocks over the next 10 years, or even both. I'm betting on things to work out, but not for any clear financial reasons. If I go back to looking too hard at that, I'll probably just stock up on food, water, and survivalist textbooks (because the internet will be gone).

A bit of ramble, I suppose. It's a worthy thread topic, and we have to prepare for the next thing to watch out for. I'm just trying not to worry about whatever that will be. :wink:

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Re: Things to worry about

Post by AltaRed » 05 Feb 2016 15:30

SoninlawofGus wrote:It's clear to me, logically, that our whole financial system is an elaborate shell game -- the shuffling of funds and debt from place to place, easily seen as a house of cards, even a pyramid scheme. Against all this, governments and financial institutions try to act as if the whole thing is somehow stable. It's not, but then again it is because it has to be. To a degree, we collectively believe what we want to believe and make that happen.
[OT] If you watched the Bernie Madoff 2 night mini-series on ABC over the last 2 nights, Richard Dreyfuss (Madoff) justified (minimized) his ponzi scheme by saying his was simply a little ponzi scheme within the big ponzi scheme that was Wall Street. He also said he was much better putting on a straight face all was well than Bush was pontificating the hand wringing in 2008. [/OT]
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Re: Things to worry about

Post by ghariton » 07 Feb 2016 11:35

Europe is forecast to do poorly, due in part to the ongoing refugee crisis:
Growth across the European Union will be slower than previously estimated this year and next as the world economy shifts into a lower gear and European leaders wrangle over how to handle an influx of refugees, officials warned on Thursday.

European Union officials said in a forecast that a drop in China’s external trade was expected to hurt the European economy, that reactions in Europe to large-scale migration from the Middle East and Africa could impede trade between European countries, and could distract policy makers from making sorely needed economic overhauls.

The lack of a unified response to the migration crisis in the European Union has led countries like Denmark and Germany to temporarily re-establish border controls with neighboring member states. That threatens to slow commercial truck traffic and other cross-border business, and presents a significant economic risk, particularly if there is a surge in migration this year.
Time to sell all my VEA/VDU? (Just kidding.)

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Re: Things to worry about

Post by Shakespeare » 07 Feb 2016 11:42

When in danger,
When in doubt,
Run in circles
Scream and shout!
“A wise man should be prepared to abandon his baggage at any time.” -- R.A. Heinlein, The Door Into Summer.

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Re: Things to worry about

Post by AltaRed » 07 Feb 2016 11:59

ghariton wrote:Time to sell all my VEA/VDU? (Just kidding.)
I've been recommending beefing up European holdings for the past year. Despite my general agreeement Europe is going to continue to struggle for awhile economically, perhaps even another year or two, it has to break out of its funk some year soon and having large cap Europe in one's portfolio has to be a good thing. Just 2 months ago, my ex sold all her remaining individual US large cap stocks and put it all into VGK.
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Re: Things to worry about

Post by iluvnascar » 07 Feb 2016 12:03

This is a very interesting thread. I am a worrier. Always have been; always will be. Even when there is nothing to worry about - or so I'm told - I find lots to worry about.

My biggest worries - the financial system trying to do too much; mounting debt....personal AND Government (which should be setting an example, but isn't); and terrorism....specifically, a "major event' in North America and/or a Hacker event which shuts down critical infrastructure.

Nowhere to hide, I suppose....which makes me worry even more.

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Re: Things to worry about

Post by longinvest » 07 Feb 2016 12:07

I'll let the managers, at Vanguard Canada, take care of keeping my VXC holding market-weighted. I can't sell Europe without selling US and emerging markets too. Currently, VXC is trailing its target, in my portfolio. So, I certainly won't sell any of it at this point in time. :wink:

But, hey, it's interesting to learn about the noise that leads investors to sell low. :!:
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Re: Things to worry about

Post by Koogie » 07 Feb 2016 12:27

During the '08 debacle I was almost entirely out of the market as I was having troubles enough keeping my business going and dealing with all the troubles my customers were facing. So, I missed not only the malaise but also the euphoria some of you must have felt at seeing the fire sale prices and yields that were on offer at the time.

I worry that this time it won't crash enough and this cash I have sitting about won't get put to practical use because the stocks and funds I'm interested in won't hit my (arbitrary) targets. ie: I'm worried about being to greedy.
Buy very little, sell even less.

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Re: Things to worry about

Post by Shakespeare » 07 Feb 2016 12:29

I'm just going to sit on my VT.
“A wise man should be prepared to abandon his baggage at any time.” -- R.A. Heinlein, The Door Into Summer.

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Re: Things to worry about

Post by SoninlawofGus » 07 Feb 2016 12:59

Koogie wrote: I worry that this time it won't crash enough and this cash I have sitting about won't get put to practical use because the stocks and funds I'm interested in won't hit my (arbitrary) targets. ie: I'm worried about being to greedy.
I've increased my equity portion substantially over the past month, adding around 10% of my portfolio. I've mostly added Canadian, EAFE, and emerging markets index funds. My equity allocation just brings me up to being a little more conservative than most of y'all. :)

It's not so much that I think it's a good time, or that it won't get a lot worse; it's just that it's not a bad time either. Put another way, I don't believe this is the worst time to buy. Globally, valuations are neither really high or low, just okay. If markets drop, at least I didn't buy at the top (as I did with the Nasdaq in 2000) or not buy at the bottom (as I tried to time in 2008 and missed out). The US market is the hardest to deal with on a valuation and historical exchange basis, but I even have been adding a bit even there, and without hedging -- going against my instincts somewhat. Ultimately, I don't want to have to deal with the "am I in or out" question with currency hedging in the future, especially when facing capital gains. Hopefully, it will balance out over the long run.

So, am I the only one not worrying much? If so, that's the first time! :lol:

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Re: Things to worry about

Post by AltaRed » 07 Feb 2016 13:19

As has been argued by some big name index enthusiasts, a decision to currency hedge is not a passive decision.... IOW, one has just added an active component to a passive portfolio.

I don't think there is going to be much further drift downwards, other than some +/- 10% noise, but the bigger issue will be when we start to see a base, i.e support and a slow grind back upwards. I believe one of the worst things that could happen globally now would be a sharp uptick in commodity prices. Most of the global economuy needs to have depressed commodity prices to have the purchasing power/strength to move upwards sometime this year....or next.....or next.
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Re: Things to worry about

Post by OptsyEagle » 07 Feb 2016 15:38

Shakespeare wrote:When in danger,
When in doubt,
Run in circles
Scream and shout!
or my favourite:

Run. Run for your life. Leave the children, there's no time.

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Re: Things to worry about

Post by schmuck » 07 Feb 2016 15:58

For anyone confused enough to stoop to "technicals" for guidance:
http://www.mcoscillator.com/learning_ce ... head_of_us
The latest chart (that I have not been able to link) is even uglier. It doesn't show any relief until October.

And for anyone superstitious enough to consider the "first five days" indicator or the "January" indicator, here's how this year's DOW numbers compare to 2008.
First 5 days: 2008 -5.1%, 2016 -6,2%
January: 2008 -4.6%, 2016 -5.5%

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Re: Things to worry about

Post by AltaRed » 07 Feb 2016 16:46

Perhaps we continue to have a slowly grinding bear throughout 2016. We don't have the financial collapses that caused that gentle slope to turn into a sheer drop off and we have a Fed desparate to stave off influencing the outcome of the presidential election. OTOH, a thousand cuts over a long period may hurt more than a 2 second splat on the concrete below.
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Re: Things to worry about

Post by Flaccidsteele » 07 Feb 2016 23:40

AltaRed wrote:OTOH, a thousand cuts over a long period may hurt more than a 2 second splat on the concrete below.
I agree.
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Re: Things to worry about

Post by SoninlawofGus » 09 Feb 2016 11:55

I have to contribute at least one worry: How about Deutsche Bank's troubles.

Late last month, Deutsche Bank reported a fourth-quarter net loss of 2.1 billion euros and full-year net loss of 6.8 billion euros on Thursday, which followed a warning last week that it would post a 2015 net loss of approximately 6.7 billion euros ($7.3 billion).

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Re: Things to worry about

Post by BRIAN5000 » 09 Feb 2016 13:08

10-year Japanese bonds fall below 0 %
“Sometimes you are going to sell early and wish you would’ve held on, other times you will hold on a
little bit longer and wish you would’ve sold early - this is just part of the game.” - Frank Zorilla via Abnormal Returns

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Re: Things to worry about

Post by gobsmack » 11 Feb 2016 20:14

Koogie wrote:I worry that this time it won't crash enough and this cash I have sitting about won't get put to practical use because the stocks and funds I'm interested in won't hit my (arbitrary) targets. ie: I'm worried about being to greedy.
Today was not a bad day to buy some stocks :thumbsup:

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Re: Things to worry about

Post by nisser » 11 Feb 2016 20:21

SoninlawofGus wrote:I have to contribute at least one worry: How about Deutsche Bank's troubles.

Late last month, Deutsche Bank reported a fourth-quarter net loss of 2.1 billion euros and full-year net loss of 6.8 billion euros on Thursday, which followed a warning last week that it would post a 2015 net loss of approximately 6.7 billion euros ($7.3 billion).
I don't follow European banks exactly but where are these losses coming from? Is this all related to the Greek crisis which was presumably bailed out by the Troika? European economy is not crashing and their real-estate is doing ok.

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Re: Things to worry about

Post by deaddog » 11 Feb 2016 21:48

gobsmack wrote:
Koogie wrote:I worry that this time it won't crash enough and this cash I have sitting about won't get put to practical use because the stocks and funds I'm interested in won't hit my (arbitrary) targets. ie: I'm worried about being to greedy.
Today was not a bad day to buy some stocks :thumbsup:
Very low risk if you are willing to cut your losses quickly.

A better day than any time since Aug 2013. Anyone buying the index (TSX) in 2014 or 15 is under water.

Notice the trend, one step forward 2 steps back. Something to worry about.
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Re: Things to worry about

Post by hamor » 12 Feb 2016 11:08

doom and gloom thread? sign me up :)
just look at all the wars, depressions, and hyperinflation over the past century, and somehow we muddled through
Who's the 'we' in the above? Does it include investors in multiple exchanges that completely disappeared in that 100 years..? Does it include countless people who lost everything to hyperinflation..?

Daily or even cyclical market moves don't worry me at all. What hurts you most is what you don't know, something we haven't see before. US and Canada had a tremendous ride, things are changing. AS mentioned upthread, governments (and their banks) are trying their best to maintain stability, but one day it will 'be different that time'. I like to think about money in the world as the water cycle - there's finite amount, it's just flows from one place to enother, evaporates, blows as a cloud to another continent and comes down as rain. There's fundamental shift from the developed world to 'developing' world, primarily Asia.

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Re: Things to worry about

Post by SoninlawofGus » 12 Feb 2016 14:13

hamor wrote:doom and gloom thread? sign me up :)
just look at all the wars, depressions, and hyperinflation over the past century, and somehow we muddled through
Who's the 'we' in the above? Does it include investors in multiple exchanges that completely disappeared in that 100 years..? Does it include countless people who lost everything to hyperinflation..?
Well, it's not as if I painted a rosy picture in that posting. What about the millions who lost their lives in countless wars? We is everyone, the collective we.

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