Recession is more than likely at least 1-2 years away. Stocking up on cash should be done before it hits, notnduring the storm.

Is the idea to move to cash to "buy the dip"?

Hopefully this is just an ordinary correction. The last time we had a financial crisis, we had masters like Fischer and Bernanke running the Fed. Now we have an inexperienced lawyer (Powell) who doesn't have any formal training in economics.

I took money out of the market, too, in August and posted about it here. But I've missed many opportunities by being too cautious.

Thank for the financial post, Mr. Meat72. Dully noted! :)

I predict the market will drop, but I can’t tell you when. Then, at some point, it will go back up. Meanwhile, interest rates will change.

Shiller's article from late last month on out stock market, the priciest in the world:

project-syndicate.org

*our

Gee mark you just keep amazing us with your predictions.

Mark’s analysis is spot on, and usually what most people say like the OP did.

It’s stating the obvious and using common sense.

Why did God create economists? A: To make weathermen look good.

^^^was that irony or sarcasm I couldn’t tell.

You fucked up

For the first time in 8 years, we have strong GDP growth, noticeable wage increases, strong business income. As a result, we have the first whiff of inflation, rising interest rates and yields, plus stock market growth. The markets are trying to digest this and decide what kind of P/E ratio and bond yield is appropriate. The underlying economy is strong but there will be choppiness in the markets until some sort of consensus and equilibrium is reached. Three years from now, the stock market will be higher. What it will be next week, or next year, I don’t know.

Just 24 days like today and we have free stocks. I would load the boat. I imagine some rich billionaires would start buying before then.

25, if you can’t laugh at yourself then what’s the point. I thought the sarcasm was brilliant by Mark.

Kind of like Yogi’s if you see a fork in the road?

I had $50k in cash just sitting around in my trading account last year. I got tired of waiting for a buying opportunity, so I paid off a mortgage at 4.625%. I am OK with the decision, it improved my monthly cash flow. Now I am buying beaten down dividend-paying ETFs to get even better cash flow. (To spend some of on escorts and strippers of course!)

I get it much of the panic selling is the hedge fund guys getting caught short, this may take a few weeks to sort out, but it looks like extraordinary amounts of VIX derivatives changing hands and most investors stay away from those type of exotics.

Yeah too much complacency. The market was unvolatile for too long and lulled traders into forgetting that conditions do change.

I was too suspicious of the steady rise to play ball. I remember the dot com market, it had several peaks and dips. There needs to be a bit of unpredictability in a proper market.

Loved the late action today! Not really, when I ha e so much time and money to be investing more into these markets.

If we're all going to brag...

Back in November when we were talking about tax reform, I predicted that the market would probably go down early in the year regardless of whether we get tax reform or not. So I'm right, too. Plus I've been taking profits for several months.

BUT... I don't agree with you that this is just about interest rates. The market doesn't have 1,000+ point declines in a single day just because rates are going to go up a few basis points. It doesn't work that way. And certainly not when people have been aware that rates will be going up for such a long time. Everyone knows that the economy has been improving and everyone knows that rates will have to go up. In other words, this isn't new information. Only new information can spook the market like this. Prices move on the news and the rumor of the news, not when the event itself happens. Markets look to the future, not the past or the present.

If it really were merely concerns about interest rates causing everyone to be less bullish, you would expect a gradual decline and flattening out of the long-term chart, years ago. But that's not what we got. We got a sudden decline and insane volatility. Generally, when something sharp and sudden happens, it's because someone in the government opened his mouth and said something stupid, which results in a change in sentiment and worry about the future. And I would point you in the direction of Trump's comments in Davos on 1/26/18 that he was considering pulling us out of NAFTA. That also happened to be the all-time high in the DOW. The market's been crazy ever since. Coincidence?

It’s definitely all about interest rates and where inflation is heading along with wage inflation fears, especially in light of tax reform.

There’s no other way to point to the reason why this is happening. Ochom’s razor. Try not to overthink this. If you do you will be throwing out a bunch of red herrings to sniff.

I don't see why that's the simplest explanation. Again, people have known that rates are going to have to go up for a long time. And people have known that the economy is improving for a long time. It's common knowledge among investors. This isn't new info. So why did the market wait until just now to go nuts?

@BurlingtonhoFactory said: "BUT... I don't agree with you that this is just about interest rates. The market doesn't have 1,000+ point declines in a single day just because rates are going to go up a few basis points. It doesn't work that way. And certainly not when people have been aware that rates will be going up for such a long time. Everyone knows that the economy has been improving and everyone knows that rates will have to go up. In other words, this isn't new information. Only new information can spook the market like this. "

@Meat72 said: "It’s definitely all about interest rates and where inflation is heading along with wage inflation fears, especially in light of tax reform. There’s no other way to point to the reason why this is happening"

^^^ What about the Nunes' FISA memo? I've read people saying the market correct and instability is partially do the confidence change over the FISA memo recently released. That's certainly new information, no? Seriously curious.

The drop wasn’t because rates went up a few basis points. The drop was in response to the new economic order. Banks and markets across the globe are reacting to a change from the QE/0% bullshit of the last decade to a normal economic environment of 2% inflation, 3% wage increases, 5% bonds, and 6% mortgages. We aren’t there yet but, like Wayne Gretzky, the market is skating to where the puck is going. That means the market will be priced at P/Es closer to 15 than 25. When the dust settles, the stock market will continue to climb as corporate earnings increase. By the way, some companies will fail as they get weaned off free money. That’s normal, but Trump will get the blame for that as well.

@Dominic77,

I've heard that explanation on the news, too, but I'm a little skeptical. Political-risk is always with us, just like interest rate-risk. But it would need to be something really new to have an impact. The Nunes memo is just more of the same, a constant drip of allegations and outrage on both sides.

Compare it to Watergate. The Dow reached 1,000 for the first time right around the time of the Watergate break-in, but it couldn't hold. By the time Nixon resigned it had been nearly cut in half. It got back to around 1,000 around 1976, but it wouldn't hold above that level permanently until the 80s, I believe. Lots of shit was going on around that time: not just the scandal and resignation of an American president, but also wage and price controls, the end of the gold standard, the oil embargo, Vietnam, and eventually an inevitable recession.

I really don't think Trump will be impeached because I just don't think he's done anything wrong at this point. I could be wrong. But I mention Watergate because that was a major event that probably contributed somewhat to the market turbulence and uncertainty of the mid 70s.

If the market starts to think that Trump will resign for some reason, yes, that would probably screw the market up. It's a calculus. He brings good things and bad things to the table. Trump is a trade protectionist whose anti-trade policies could bring the market down... but at the same time I don't think the market would have been up to begin with if it weren't for his deregulatory policies and corporate tax cut. So he's a double-edged sword for investors, but overall I don't think the market wants to lose him. Especially since I'm convinced that Pence would lose in a general election to a Democrat. Regardless, I don't see how the Nunes memo is new information or a tipping point.

Sideways volatile market for rest of the year. Interest rate driven and inflation causes.

@BurlingtonHoFactory

My takeaway from the Nunes' FISA memo was that some of the things President Trump has been saying all along (that he was spied on by the FBI during the campaign) were actually true, and not just the blathering of a crazy man. Whereas some of the Russian dossier has yet to so even a similar shred of evidence. It's sort of a strange world when President Trump's got more evidence than the opposition (Democrat party, Secretary Clinton, Russian probe, etc.).

Now whether that moves markets or not I cannot say.

^^^^The market as a rule doesn’t believe in conspiracy theories
If you want to find out what’s happening check the VIX.

But wasn't one of the lessons from my Econ Professor was don't assume rational thought where there is none? ;)
I'm not sure what VIX is but you mentioned it before plus I should be able to look it up. I'm guessing it's not VIXen? ;)

^^^ Volitality Index

The "new" information is the change in leadership at the Fed and the belief that the Fed will become more hawkish under the new leadership. The result will be increases in interest rates faster and more profoundly than originally forecast. This change resulted in an unexpected spike in the VIX resulting in hedge fund sellers sprinting for the exits. Yellen did an excellent job signaling the Fed's intentions well enough in advance for the markets to absorb the news gradually, thus low VIX. The new regime may or may not follow suit.

After the markets finish shaking out the uncommitted buyers, sanity will be restored and earnings will again dictate the market direction. When 490 of the 500 stocks in the S&P 500 drop on the same day, it stands to reason that SOMEBODY'S price dropped without merit. In the short term, value oriented mutual funds should win. In the long term, stay the course and buy on the dips. Always hold back some cash for these buying opportunities.

Bingo! ^^^^

Mic drop

@pensionking,

I would agree with you, except that Jerome Powell was nominated by Trump all the way back in November, and his confirmation has never been in doubt - the vote was pretty overwhelming in his favor. Plus his monetary philosophy is virtually identical to Janet Yellen's: they are both slightly dovish. There's no reason to believe that Powell will behave any differently than Yellen. Plus he's a known quantity: Powell was originally appointed to be a regional governor on the Federal Reserve Board by Obama, back in 2011 I think, so he has an easily accessible record for traders to sift through. This looks like just more of the same. But even if the new Fed Chairman does add some additional sense of uncertainty, surely we would have seen the market react immediately, back in November, but instead it happened just now.

@BHF @Pensionking told it like it is you can take this information and use it or not as you like I said exactly the same thing earlier in the drop and I said this again yesterday above This is the consensus of the market makers giving you information in a way you can use it , be contrarian if you like but at your own peril.

@twentyfive,

I'm definitely not shorting anything and I'm not feeling particularly contrarian. I'm only saying that it doesn't make any sense to say that the market went down because of Jerome Powell. It doesn't add up. Usually what happens is that the market moves, and then journalists and investors try to guess at what made it happen. But we're all just guessing, myself included.

The simplest answer is usually correct.

Right. But what makes you say that this is the simplest answer, given that we've known about Powell since at least November? You make the market sound like a college student who waits until the last minute to write a term paper. It doesn't work that way. There's billions of dollars at stake and the market responds to news as soon as it becomes aware of it... not three months later.

^^^Because the hedge funds started selling right away and the reports were coming in about VIX exotics, seeing volumes of trading that had never been seen before. Those exotics are designed to make money from volitality. I’m still researching them and they appear to be vehicles that only the most sophisticated traders would be capable of utilizing.

Well, maybe I'm wrong. When did the hedge funds start selling?

As soon as they started reporting interest rates rising. That started the sell off and it just snowballed into a full blown panic.

Well, like I said, maybe I'm wrong. But that sounds like dumb-money to me. Not smart-money. So I just don't buy it. You never know what will cause a panic, but the media likes to craft a narrative and they're pretty lazy about it.

But as I said before, market participants have known that rates are going to rise for a long time. And they've known that Janet Yellen is history since at least November 2017.

Compare it to 2007/2008. At the time, the market was declining in an orderly fashion as news kept coming out that the banks were sitting on a pile of crap loans. But then the markets went nuts and started behaving erratically as soon as the feds allowed Lehman to collapse and Congress failed to pass the bailout on the first attempt. The reason for the violent reaction in the markets is that they had to quickly price in new information. The new information being: "The government is going to let banks fail for real, and don't count on a bailout." That's my take on it anyway.

We have an industry, stock brokers, based on vague predictions followed by brazen claims of accuracy. My all time favorite is the chastisement that investors need to be “selective”, without telling them specifically what to select. Another favorite is the permanent bears who, every 5 years emerge from their dens to proclaim their brilliance. Then, there are the fund families which close their underperforming funds, then announce that all their ( remaining ) funds are above average.

Panics usually are dumb money, following a herd mentality, but it wasn't the media who created the panic, they just noted the trend!

mark94, excellent assessment on the industry!!

Real simple which is why I advocate building your own investment allocation and leaving it alone. Then you don’t need to go to an adviser/broker. That’s why they’re called brokers, because you end up broker after meeting with them.

IMO, some of the problem is programmed trading. The VIX ticks up, programs say sell, causing the VIX to tick up further, causing more selling ... this shit happens in milliseconds. This is why increases tend to happen gradually and drops happen rapidly.

BTW, while we knew about Yellen's departure, the other new news, quite coincidentally upon her departure, was an uptick in inflation, wage increases and a drop in unemployment. In response, the media reported the immediate possibility of 4 increases, not 3, to curb expected further inflationary forces. Speculation took over and we see the result.

Love @Mark94's assessment of pundits. Can't argue with @Meat72's assessment of the shittiest of brokers. The value of solid financial advice is the steady hand when everyone else is in a panic. Truly special advisors encourage us to sell when our gains have us in a position of being over-exposed to risk (and buying when our losses have us under-exposed to risk). The broker is not to be a fortune teller -- they are to be disciplined without passion (especially when we are unable).

Meat72 said, "That’s why they’re called brokers, because you end up broker after meeting with them."

LMAFO. Bravo, gentlemen.

The only positive thing I can say about having a Financial Advisor, is that he/she may buffer an individual from making a really stupid emotional decision on their own behalf. Too many people are tempted to do something that goes against logic, because we all rationalize what our behavior is, even if it’s the wrong behavior, like selling into a down market.

Pension is right when he says a good advisor would assess your exposure and see if it matched to the individuals tolerance. Everyone wants to be in the market and likes it when it goes up, but the true value an investor seeks is when it goes down.

I believe that you guys that are down on financial advisors have never had a good one. and I agree they can be hard to find. My suggestion is that you speak to a lot of them, before deciding to go with one or not. I have had great luck through the wealth management division of my bank, most of my buy and sell decisions are self directed, but especially in my case, running a small business it is helpfull to have a backstop, when owning and trading in equity markets. If you are the type that just buys mutual funds or ETFs an advisor is really not necessary, but if you want to own a portfolio of seperate stocks , bonds, some investments in LTD. Partnerships, I would invest in a good money manager. Most operate on a sliding fee scale basicly the more you have invested with them the lower the cost, in my case below half a percent annually. Trading through the wealth management brings my cost down to less than a dollar or so per trade, and mant trades are free, depending on who you bank with. It's easy to bash these guys but keep in mind, a good financial advisor, a good accountant, a good lawyer, and a good doctor and dentist will save you a lot of money in the long run,

^^^ one last thing to consider you cannot buy stock without a broker at least not your initial purchase or sell either. But a broker is not a financial advisor so it is absolutely essential to use a low cost broker even if your portfolio is self directed.

@mark94,

I totally agree with your analysis. It's a shallow industry, without a doubt.

@pensionking,

I understand what you're saying about programmed trading. But if you stop and think about it, programmed trading is not much different than limit orders, stop limit orders, and other forms of conditional trades that amateurs can execute. It's not really all that exotic. An event happens and it triggers a buy/sell decision. That's really all it is.

@twentyfive,

Regardless of what caused the sell-off, I think we can both agree that it was an overreaction (but probably a healthy and necessary correction). If it was interest rates and inflation that sparked the sell-off, well, that's just a case of Wall Street getting what it wanted and then changing its mind about it. After all, it was only a few years ago that market pundits were telling us that we need to see rates go up, because, they said, this would be proof that the economy is strengthening. But now the economy has strengthened and rates are set to rise, and everyone panics about it.

On the other hand, if it was trade protectionist fears that sparked the sell-off, I think that's an overreaction too. Even if Trump does pull us out of Nafta, we will just end up striking new deals with Mexico and Canada individually. And these deals will be virtually identical to Nafta. (The only beneficiaries will be a bunch of lawyers who get paid to file the new paperwork LOL.) Plus I think the WTO will strike down Trump's recent Chinese tariffs, just like they did with George W. Bush's tariffs.

25, an FA is wise for someone in the sub sector you’re in, but the average Joe Schmo who has his retirement funds in mutual funds needn’t hire out. It’s amazing how many broke people talk about meeting with their financial advisor, because it makes them “feel” good.

The average person under $500k investable assets only needs to know how to make more $$ by saving more $$. Pretty easy, but for complex business owners like yourself, no doubt an advisor is invaluable.

Warren Buffet tells anyone who asks that they should put all their long term money in a low cost S&P 500 index fund or ETF, then let it sit. If someone has a more successful financial advisor than Buffet, I’d be interested in hearing about it.

Here’s just one example of what Trump means by a bad trade deal. Under NAFTA, China can send billions in industrial parts to Canada, where a small amount of final assembly takes place. Then, the finished good is exported to the USA as a Canadian item with little tariff.

However, goods going from the USA to China face tariffs and non-monetary barriers to entry. Millions of Chinese workers stay busy while American factories stand idle. Oh sure, this means you can buy cheap Chinese goods at Walmart, but only if you aren’t one of the millions who lost their jobs.

@mark94,

Maybe, but can't China also send the parts to the USA for assembly before exporting them to Canada with minimal barriers or tariffs, too? I mean it works both ways, right?

Anyway, we currently export more than four times the dollar amount of goods and services that we exported before Nafta. I just don't see how it's hurt our bottom line. Yes, far fewer Americans are employed in manufacturing than, say, 50 years ago. But we're still exporting more stuff than ever before. And regardless of where the parts and materials come from, an American is still getting paid for selling the finished product. What Trump is advocating is to increase all of our costs just to benefit a few (probably unionized) manufacturing workers in the rust belt. That's what trade protectionism amounts to.

Here's my question for you. Imagine that every country on earth somehow manages to simultaneously eliminate all its tariffs, quotas, subsidies, barriers, and trade deals, and the entire world had 100% pure free trade, with no preferential treatment for any country anywhere. In fact, just for good measure, assume that we also can get rid of all minimum wages and unions, too. Presumably that would finally put us on a level playing field globally. And yet, despite all this, imagine that we still have a large trade deficit with China and other developing countries. That would be the likely outcome anyway, because their wages and standard of living is so much lower than ours, so they can afford to sell retail mass-merchandise for cheaper than we can. I'm curious, how would you feel about this? And what, if anything, would you want to do to rectify it?

I have no problem with your imagined no tariff world. In fact, that’s the arrangement I prefer. I really do prefer free and fair trade.

The problem is that we have a web of trade arrangements with their roots going back to post WW II that was designed to generate growth in other countries. During the days of the Marshall Plan, when our economy was vastly superior to the rest of the world, that was in our national interest. Now that much of the world has caught up to us, a level playing field is in our interest.

@meat I agree that many don’t need an FA but there are some folks who could benefit from real financial advice, the real problem is those are the ones that get conned by salespeople masquerading as FAs.

@ mark94 Mr Buffet has an array of advisors including FAs, he has an entire research department working on his behalf. He is right more often than not but he has has his share of losses. I agree most would be well advised to just buy a few index funds and hold but that doesn’t apply to everyone.

@mark94,

But you understand, Trump and the economic nationalists would still say that we're "losing" under my hypothetical conditions, because of the trade deficit. We would still be buying more from overseas than we sell. This is because of our wealth, of course: rich countries always buy more than poor countries do, because they can afford it. And this is exactly what I predict would happen in a purely free-trade world. If anything, I predict that our trade deficit would actually increase under these conditions.

As for the trade deals, I agree, they are not free trade: they are 'managed trade.' But we didn't have any free trade before the war either: we had tariffs and quotas, etc. I wouldn't say that these deals were merely designed to increase the wealth of poor countries. They were intended to increase the wealth of everyone and to keep the peace. New economists who arrived on the scene after the war began to advocate forcefully for free trade, most notably Milton Friedman. Friedman argued that America should unilaterally remove barriers to imports, while also encouraging other countries to do the same. Neo-liberal economists also argued that future great wars could be avoided by having countries trade with each other, and therefore become somewhat economically interdependent on each other. As Frederic Bastiat is alleged to have said "If goods can't cross borders, soldiers will." And for all their faults, the trade deals have certainly increased the volume of global trade and the degree of global economic interdependence. Not to mention global wealth. America has grown much richer. Poor countries are still poor, but they are far richer than they were 40 years ago. Just in the time it took me to write this paragraph, probably 100 people were lifted out of poverty in the Third World.

Well, holy SJG!

10 year yield hits 4 year high after Fed announces continued rate hikes. No shock to see the market sell off on that bit of news. Dow was up 300 points and dropped in the red by over 150 points. A 2% decline on the market will hopefully lead us to test the lows we saw earlier this month.

^^^

Yawn. This ain't news, folks. The 10-year yield has roughly doubled since the Summer of 2016. And during that time, the Dow has also surged by almost 40%. So yes, interest rates matter, but obviously other things matter, too. Otherwise the stock market would have cratered since the Summer of '16. And I still say that old news doesn't cause the market to move.

By the way, we could end all this silliness by simply ending central banking and shutting down the Federal Reserve. Let interest rates do their own thing for a change.

Machines have taken over most of they trading. Whatever the computers are programmed to react to, they do in droves. Hit a common Fibonacci retrace amount today more than likely and computers sold driving Dow down over 400 points from that point. News media likes to pin the blame on whatever news items they can. The fed, interest rates, whatever. cnbc.com

The last decade of QE and 0% has been like a really bizarre Econ laboratory experiment. We are now returning to reality where investors buy bonds and get an actual return on their money. What a concept !

Anyone under 35 must be in a state of shock. Mortgage rates are what ? The sky is falling !

For us old farts, it’s like going back to our hometown. Everything looks familiar. Was that last decade a strange dream ?

"The last decade of QE and 0% has been like a really bizarre Econ laboratory experiment"

Yes, the libertarians and tea-party types said it would turn us into Zimbabwe. Maybe any day now.

@RandomMember,

Yes, some libertarians did speak about the expansion of the Fed's balance sheet in hyperbolic terms. Not all of them, of course, but many did. For my part, I assumed that there would be some inflation as a result of central bank activity. I guess I was in good company, too, because the Fed also assumed that there would be some noticeable inflation by now. I've been surprised that inflation has been this low for this long - and the Federal Reserve seems to have been surprised about it, too, based on public remarks through the years. But even if I had believed with 100% certainty that the Fed's interventions would work perfectly, with no unintended consequences, I still would have opposed them. You should be able to guess why by now.

But the key point that you should remember is that ideologues and partisans always speak in apocalyptic terms about what will happen if their preferred policies aren't enacted (and if their preferred candidates aren't elected). Progressives and conservatives do this all the time. So why should libertarians be any different?

^^ well the experiment isn't over yet and maybe we will see significant inflation.

This just in: financial journalism is officially bullshit. A few years ago we were told that the market needed to see some rate increases as proof of economic strengthening, which would lead to labor market strength. Fine. Then a few weeks ago we were told that the economy was getting too strong, leading to too much strength in the labor market and too many rate increases. Fine. Now today we're being told that the market is still worried about interest rate increases but that it's being calmed down by... signs of a strong labor market! Financial journalism is bullshit and anyone who gets all their "insights" from journalists is probably bullshit, too. Here's an article from today entitled "Stocks rebound in broad rally as strong labor data overshadows Fed jitters":

marketwatch.com

If the long end of the curve stays pace with the short end, there really isn’t any time to jump out of the market. With rates, if they flatten on the yield curve or invert, it’s time to bail. It’s not time to bail yet, however it will continue to be choppy. Everything looks choppy compared to 2017.

With nearly 10 years of low rates, any increase will spook markets, which is why it will remain choppy. Individual investors have so much cash on the sidelines, and even corporations do. So if those entities ever release their funds it will increase the velocity of money for a peak in the market. My guess again is another year or so.

Hmmmm, stock market ending up after Friday’s close nearly 1.5% to 2%.

Could it be merely a coincidence that rates declined yesterday? Or is it some other geopolitical or conspiracy theory as to why? My thoughts stay with the movement was tied to interest rates falling.

So the good days are here again? Dow 30,000 coming up? Interest rates at 3.5% and no one cares? I think when 10 yr bond yields hit 5%, someone will not be happy.

No one really knows how businesses and consumers will react as interest rates creep up. That explains the volatility in the market. With every move up, the market holds its breath to see if economic activity will slow. So far, the answer is no.

I think there’s something in the water, maybe fluoride, maybe lead, maybe both.

^^^ maybe in the short term, but anybody with half a brain can tell you that when interest rates are high, the cost of debt is much greater. And if the cost of debt is greater, and companies have debt (which basically all of them do), then that cost eats away at profits. The interest on the national debt also rises. What happens when the interest on your debt is the most costly thing on your budget? What happens when HALF of the US GDP goes to paying interest? That’s like taking out a loan from a bank so big, that half your monthly income goes just to paying the interest. That’s like, say I make $60k income per year. If the interest on my loan is $30k, and the annual rate is 4%, that means the loan balance is $750,000! If you looked at a company and saw that they were 750k in debt with a revenue of 60k... that’s a bad stock. Would anybody here invest in that?

Best companies are always those with little debt on their books that’s true in any environment

^^ 25, that’s why Apple stock is considered a safe haven. No debt, just a bunch of cash on hand.

Ima posting a link to a news story about Warren Buffet it will confirm our shared beliefs in market investing and should be required reading for anyone who has ever considered investing in the stock market

How Buffett beat the hedge funds

@Meat72,

You're looking at it the wrong way. Yes, interest rates are important: the risk-free rate is directly related to virtually all investments. But correlation and causation are not the same thing. If anything, in the short-term, stocks and bonds are supposed to move inversely, which means that higher interest rates and higher stock prices will often occur simultaneously intraday, as investors flee fixed income assets in favor of the stock market, and vice versa.

It's only in the much longer term that we tend to see lower interest rates correlating to higher stock prices, usually in response to declining rates of inflation. (This is what happened throughout much of the 80s, for example.) Regardless, debt and equity markets are generally responding to exactly the same events on any given day. It's not that the bond market necessarily causes the stock market to move; instead, some external event causes them both to move.

But if you're going to say that the stock market went down merely because interest rates went up, then you might as well say that the market went down because there were more sellers than buyers. A useless statement but at least you'd be technically correct. Anyway, see if you can spot the flaw in this line of reasoning:

1. The stock market doesn't like it when interest rates go up;

2. The stock market doesn't like it when the economy is weak;

3. Interest rates tend to go up in a strong economy;

4. Therefore, taken to its logical conclusion, the stock market can never go up, it can only go down, because it will always be confronted by either a weak economy or rising interest rates. (Or vice versa: the stock market can never go down, it can only go up, because it will always be confronted by either a strong economy or falling interest rates.)

I hope you can see how ridiculous this line of reasoning really is. Personally, I would prefer a strong economy with rising interest rates over a weak economy with falling interest rates. Remember, at least for now, we're talking about the difference between 3% and, maybe, 5%... not the difference between 3% and 50%. A healthy economy should easily be able to absorb a rate increase of this magnitude.

In full disclosure, I was a finance major as an undergrad (one of the worst mistakes of my life), but I'm definitely not a professional or an expert of any kind. And, to be fair, the business/finance program was administered by the Economics Department at my college... which means that it was basically an economics degree with a few classes on investment analysis, accounting, law, and management thrown in. So feel free to take everything that I say with a grain of salt.

Oh, by the way, regardless of how much cash they have now, Apple has historically had tons of debt. Does that mean that Apple was historically a bad company to invest in?

HoFactory, that looks like a lot of red herrings g you w thrown out there. Monday’s market close over 1% higher, and interest rates droppped once again.

If I was an investor trading, I’d see the correlation is quite high between the rates movement and equity prices. It seems to be quite the simple formula, and anything else is just fuel for fodder.

Every recession has been predicted by the yield curve. Almost every recession. Watch if it flattens or inverts for your cue to avoid equities.

Markets reflect where they think the economy, including interest rates, will be in the near future, say 6 months out. This allows a self correcting loop between rates and market. If markets anticipate a rising interest rate, markets fall and it becomes less likely that rates will actually rise. That’s the dance that we’ve seen recently. It is far more complicated than simple cause and effect. For 8 years, we had economic equilibrium, anchored by a belief in QE and 0% rates. Now, there is true economic growth and all the levers, including rates, are in motion. No one lever can predict where we are going.

Good perspective from zerohedge.com

There is the short-term action; what happens next on the charts. Then there is the market going through a longer-term paradigm shift as we adapt to the new reality. We have to be challenging the way we think about markets – get out of the mindset of the last few years, and into a more market driven way of thinking to reflect how things have changed. We’ve shifted gears in both bonds and stocks. Apparently over 60% of fund management professionals have less than 8 years market experience – which means they haven’t seen bond bear markets, liquidity ice-storms, or genuine fear in stocks.

I still think there is value to be had, but be sure to do your due diligence.

With inflation picking up it is prudent to look into a commodities based etf. REITs and similar inflation hedges.

I would develop 10% commodity etf, 10% TIPS, and 10% REIT in my portfolio with the remaining 70% split between bonds and equities. My big $.02 worth.

I agree with the REITs but I just freed up some cash to buy another commercial warehouse bldg.

For buy and hold you have a hard time beating real estate over a 25 year horizon. It’s especially sweet it it’s cash flow positive with an income to boot.

"then you might as well say that the market went down because there were more sellers than buyers. A useless statement but at least you'd be technically correct."

• I would say that that is the MOST useful statement, because it prevents you from seeing the trees instead of the forest. You finance guys might get caught up in the minutia of correlations and causation, all while losing sight of something important. Just ask Stephen Covey, "What is the third habit?" "Put first things first." And what is the FIRST thing in everything that we are discussing? People, and their actions. Why do you think von Mises' book is called "Human Action"? Because he gets it. Economics is not fundamentally about interest rates and market correlations, it's about people, and their actions.

Rising inflation means higher yields which means falling bond prices. Rising inflation means higher mortgage rates which is bad news for REITs.

The best investment in a time of rising inflation is equity, because they have pricing power.

@Meat72, not sure which apple company you are talking about, I am seeing AAPL has a debt of about 122 Billion USD in the most recent quarter, whereas cash stands at 77 Billion. Gross profits are about 88 Billion trailing twelve months.

All of that aside, Apple is still primarily an American company, with most of its sales in America. You are still required to look at the entire global economy if you want to try to predict the future price of Apple's stock. Suppose something happens between China and the Middle East oil producing companies, and the US dollar loses its place as the reserve currency, and the dollar has a slow descent. Domestic companies that import from other countries, then, slowly lose their purchasing power. So, they raise prices of their products. Now the iPhone costs $2000. Will Americans buy a new phone for $2000?

And around and around we go.

Point is, we are in a global economy now. Considerations of the actions of foreign countries must be made, in addition to the actions of our own country.

@mark94, how can you say that?! It could not possibly be that domestic equities are the best investment in times of inflation, regardless of the rate of inflation. If we had hyperinflation like you've seen in other countries then Americans would go shopping for iPhones far less than they do now. They would go shopping far less in general. If Americans stop shopping, where do the American companies get their revenue? If they don't get their revenue, where do they get their profits? If they don't get their profits, how will their stock prices go up?

IDK about you, but I can't eat my stocks for food.

In times of inflation, wages go up. Maybe you are too young to know that.

@Meat72,

Then how do you explain the doubling of interest rates from mid-2016 to early 2018, and the huge equity bull market that also took place during that same time period?

People always want simple answers so that they can predict the markets, but life doesn't offer many of those. Even if you genuinely believe that interest rates are more predictive of stock prices than any other indicator... you would still have to find something that can reliably predict the movement of interest rates!

@FTS said

"Why do you think von Mises' book is called "Human Action"? Because he gets it. Economics is not fundamentally about interest rates and market correlations, it's about people, and their actions."

Exactly. That's what I'm saying. You're making my point for me. The most important question is always 'Why?'. I've never read Human Action, but I am aware of the work of Ludwig von Mises, and I totally agree with most of his conclusions. One of his key points was that it's not very useful to analyze economic concepts solely through math and data. People are more than just little economic machines. The concept of praxeology is not well regarded amongst orthodox economists, but it should be.

HoFactory, interest rates are exactly where they’ve been since January 2015, at least on the widely viewed 10 year treasury.

Here you go:

marketwatch.com

Pull up the 3 year view and beyond. You can clearly see on the chart that rates cratered in the Summer of '16 and have since doubled. But even if you were right, it wouldn't change anything. They've been anticipating rate hikes for roughly 9 years now, and yet the market has thrown quite a party despite that concern. The market may not want higher rates, but the market would never shit the bed in response to easily predictable things. That would make it too easy to make money. And rising rates are very predictable at this point.

Oh, I almost forgot about this, too. Article entitled 'Dow plunges more than 450 points after Trump says steel and aluminum tariffs coming next week':

cnbc.com

The same unimaginative stenographers who have been talking endlessly about interest rates just changed the narrative somewhat. Any thoughts? (Last I checked, rates on the 10-year were slightly down today, too.)

Trump is shitting all over the place, he’s trying to get even with someone for something and unfortunately we pay the price not him.

Everything is connected. Rates. Tariffs. Tax cut. Regs. Lots of levers. And, I believe the Tariff announcement is a bargaining position, not a final step. Six months from now, the economy will be solid, rates will be higher, we’ll have some new, improved trade agreements, and stock market will be just fine.

^^^The main point is this is an additional level of bullshit visited on the backs of American investors that doesn’t need to happen. Trump is not the wizard of oz manipulating a hypothetical, he is the POTUS and he needs to be responsible and quit his histrionics.

@mark94,

Well, if it's a bargaining position, then he's bargaining by holding a gun to his own head. Don't get me wrong, I'm sure it's an overreaction and everything will be fine in the end. But still. It shows that at least some people have nervous stomachs about the trade protectionist stuff.

Quick question for you, slightly related: how do you feel about sanctions on North Korea, Russia, etc.?

@twentyfive,

Now I'm confused; I thought you liked trade protectionism. By your reasoning, shouldn't the market be celebrating Trump protecting us from Volvos and Samsung televisions and Chinese trinkets by now?

I favor sanctions against our Cold War ( and, not so cold) enemies. Russian “ mercenaries “ staged an attack against US and ally troops in Syria and we killed roughly 200 russkies. As Whoopi Goldberg might say, this a “war, war “ not a trade war.

@BHF where in the world did that come from Ive never advocated trade wars, Trump is shitting the bed here, he always does.

@mark94,

Ok, fair enough. I certainly don't like Vladimir Putin and I don't wish him well either (although I don't like sanctions). But now someone's going to have to explain to me how sanctions are any different from tariffs. As you know, I don't have much education; I am just a humble strip club monger. Certainly I don't have an MBA and I never studied at Cambridge, so maybe I'm missing some finer points ;) But isn't the goal of sanctions to increase prices and decrease the supply of goods in the targeted country? In other words, it seems that a tariff is just a sanction placed directly on our own nation by our own nation. It's like we're threatening to apply sanctions on ourselves!

@twentyfive,

Well of course, no one wants a trade war. But that's what increasing tariffs would lead to if not for the WTO. We had this discussion once before. Remember, I asked you to find any economist and ask him what he thinks of us unilaterally eliminating all tariffs, quotas, and subsidies (which is what I endorse). At the time, you told me I had drank the libertarian cool-aid. I'll try to find the thread for you.

You are too extreme I never said or implied anything like what you are advocating, that is definitely libertarian kook aid, there needs to be some restraint, unfortunately this guy is determined to shit the bed.

Maybe a good perspective is the scope of tariffs and sanctions. Smoot-Hawley immediately imposed tariffs on 20,000 imports. The Steel and Aluminum tariffs affect 2 goods representing under 2% of imports.

As best I can tell, Trump’s long term goal is a trading environment that is “fair”. The end result will be a more balanced US economy that includes manufacturing jobs. Getting there, several years of transition, will be messy.

Unlike Smoot, Trump doesn’t want to shut down trade. Admittedly, he isn’t a free market globalist. He’s a pragmatist who wants to keep Americans employed. The globalists had us headed down a path where 50% of the US population would be unemployed or underemployed in the name of free trade. That is not poltically tenable.

Now, sanctions against North Korea are intended to shut down trade completely. Hell, we may even turn to a blockade at some point. NK is developing nuclear weapons whose central goal is to threaten the US. That is unacceptable. Pre-emptive strikes against NK are a frightening thought, but preferred to having millions of citizens face destruction at the whim of rocket man.

@mark94,

Maybe I'm wrong. But steel and aluminum are major inputs for U.S. manufacturing. When prices of the imported raw material is artificially increased to the level of the domestically produced material, we will all end up paying more for everything in the end. That's not a recipe for job creation, it's just redistributionism. Trump is asking us all to pay more just to prop up a few dozen steel companies and a few thousand steel workers. Even though it may seem like only two products, steel and aluminum are needed to produce thousands of items. It would be different if Trump were raising tariffs on pineapples and tangerines.

I understand that you think Trump wants a more fair trading environment. But if he succeeds in getting foreign countries to reduce their own subsidies and to stop "manipulating their currencies," I promise you, Chinese goods will still be cheaper than ours. Sure, they'll be more expensive than they are now, but they'll still be much cheaper than our products are. And Trump will still say that we're being ripped off. Because he's economically illiterate.

As for sanctions and war against NK... I would think a non-globalist would reject this. A non-globalist would ignore NK and not give any more attention to the retard who runs that regime. Trust me, they can't hurt us. Even if they manage to build one bomb and then attach it to one missile and then manage to launch it all the way to the U.S., we would respond by destroying them so completely that there would be nothing left of that sad little country. We wouldn't even need to use nukes. Our conventional weapons would simply overwhelm them. But by applying sanctions to NK, all we're really doing is punishing the people who live there. Not the Kim regime: he doesn't seem to be losing any weight.

Haven't the people who are forced to live there suffered enough? And I seem to recall the nationalists criticizing Bill Clinton and Madeline Albright for using sanctions against Iraq, and causing the deaths of innocent children. This seems like exactly the same thing to me.

Like I said, maybe I'm wrong. I mean, Trump is way off schedule, based on my predictions. I figured he would have ramped up the protectionist measures last year. And I didn't think he would endorse gun control and DACA again until next year, after the midterms were over. I was way off.

Here is Wilbur Ross explaining their pragmatic view of tariffs

Secretary Ross challenged the panelists to name a nation that’s less protectionist than the U.S.

He got no responses.

Ross then cited a study of more than 20 products that showed China had higher tariffs on all but two items on the list, and Europe all but four.

“Before we get into sticks and stones about free trade we ought to first talk about, is there really free trade or is it a unicorn in the garden,” said Ross. {{{ZING}}}

Well then, it's too bad that I wasn't on the panel in Davos, too, because I would have rattled off a list of countries that currently have lower trade barriers than the U.S.: Macao, Hong Kong (both of which are in China), Switzerland, Singapore, Japan, New Zealand, Norway, Iceland, Canada, Brunei, and Australia. All have lower tariffs and trade barriers than we have, and they're all rich countries, too.

By contrast, the countries with high trade barriers tend to be real garden spots like Haiti, Cuba, and India; if high tariffs are intended to enrich their people, well, it isn't working so far. The high-tariff countries tend to be real shitholes, as Trump accurately described them, and I wouldn't want to emulate them.

My response to Wilbur Ross would be that free trade can only exist if we allow it to. It doesn't exist now and I don't think it ever has, but that doesn't mean that we can't continue to move in that general direction.

Someone has to be the first country to agree to stop harming itself with trade barriers. If Trump can convince other countries to lower their barriers, then that's good and I support that. But if not, then I still say we should unilaterally stop hurting ourselves. So far, he's setting a terrible example and I can all but guarantee that he will lose at the WTO, just as other recent presidents have.

The long term problem is going to be Trumps cavalier attitude about debt, this is a man who said “I love debt” he thinks running the country is the same as renegotiating a deal that he makes after he realizes he made a bad deal. There is real danger creeping into the market, right now, unless somehow the people around him manage to start to contain his irrational impulses, which hasn’t been done yet, Trump is doing some real damage and causing much of the high volatility that is roiling markets all over the world.

In fairness, the US is #13 out of 200-some on the list of low trade barriers currently. The countries we should be exporting to, China and India, have huge tariff and non-tariff barriers.

^^^ So you support punishing 350 million Americans to help save less than 400 jobs, every time you buy a car, or crack open a beer, every building that goes up every bridge that needs to be repaired is going to cost more, this is a ridiculous idea.

25, we won’t feel a pinch or barely a pinch on higher cost of goods with higher tariffs. In fact this morning Dimico states that these tariffs will only raise the price of an average new vehicle by $146.

The only thing we need to worry about is starting a trade war, which we’ve never even started. Foreign countries tariff the shit out of imported US goods, so this is just evening out the playing field. In fact, China ships to Canada and Mexico, just so they can avoid directly to the US because we Americans end up importing Chinese products byway from Canada and US.

If the NAFTA agreement gets redone, that is where we can cause harm, but this recent development is a big nothing burger.

@Meat I don’t agree I think this guy is playing fast and loose with the basics, he had to know this would hit markets quick and gave no one a heads up before doing his announcements, I believe that he is just trying to distract us and I heard from people I know in the market that a few folks sold shit in large amounts shortly before he made his announcement. Remember I don’t live very far from his Florida club and some of those insiders use the same wealth manager I use.

Last year, we exported $130 Billion to China while they exported over $500 Billion to us ( plus more through Mexico and Canada).

Trump says that we have a huge advantage negotiating in this position. He’s right.

If China refuses to lower barriers, and a trade war breaks out, we’ll experience some inflation ( and Apple will be screwed ) while China will enter a Depression and possibly revolution.

@mark China doesn’t export much steel or aluminum this is known if you want to fuck with China crack down on theft of intellectual property this affects Canada and other allies Thers this new thing out now it’s called the internet, you can look it up don’t shoot from the hip, you don’t know what the fuck you are talking about. China is a net importer of steel and aluminum tariffs will hurt Americans not the Chinese.

BTW Mark I looked it up they exported 309 billion to us. I told you look up this stuff you are spouting a lot of nonsense, they didn't export any raw steel.

Here you go if you have a real interest in economics try reading then verify the sources cnn.com

@mark94 said

"The countries we should be exporting to, China and India, have huge tariff and non-tariff barriers.... Last year, we exported $130 Billion to China while they exported over $500 Billion to us ( plus more through Mexico and Canada)."

China and India are poor countries that can't afford to buy as much as we can. That's the underlying reason for virtually all trade deficits throughout history. In a free market, America's products would cost a dollar while Chinese products would cost a dime. But instead, because China subsidizes key industries and pegs its currency to ours, its products end up costing a nickel. That may seem unfair to you. And it is: it's unfair to Chinese workers, savers, and taxpayers. But last time I checked, a dime was still less than a dollar.

@Meat72 said

"we won’t feel a pinch or barely a pinch on higher cost of goods with higher tariffs."

If we won't see any difference from the tariffs... then what would be the point of the tariffs? They are intended to affect behavior. And steel and aluminum are very important commodities. Unless you drive a Fisher-Price, your car is made out of them. Your home contains lots of it, too. And every machine you've ever seen has been at least partly made of this stuff.

Other choice observations you made:

"The only thing we need to worry about is starting a trade war, which we’ve never even started."

Yes we did, in the 1920s and 30s. Many economic historians even blame the trade wars of the 30s for Japan's War in the Pacific. As an island nation in the modern era, Japan had become reliant on imports. So by the time the full trade restrictions hit, Japanese soldiers were forced to literally eat the bark off trees to survive at times. And commodities like rubber and steel seemed to only be available to them through conquest. It made their expansionism inevitable.

And here's another gem:

"In fact, China ships to Canada and Mexico, just so they can avoid directly to the US because we Americans end up importing Chinese products byway from Canada and US."

First, as I've already told mark94, if this were really happening, we could simply bring the matter to the WTO. Second, under the terms of Nafta, our own customs inspectors get to decide which goods get preferential treatment, so if China were really trying to sell through a backdoor via Mexico, we could easily put a stop to it. And third, Mexico has much higher tariffs than we do. So if China is doing this, they must not have learned how to count. Why should they pay $4 to Mexico just to avoid paying $1 to America?

HoFactory, we didn’t start the current trade war, our foreign dignitaries have by imposing them on us. Again I feel you referring g to the 20’s and 30’s tariff Act as a red herring to current events.

25, I’m not busting your chops but definitely your “wealth advisor”. I know we humans need our idols and you may think your financial advisor walks on water, but if he has any weight for gold he’d shut his mouth before spouting off shit he knows he should keep quiet about. Insider stuff like that information he confided to you about is grounds for SEC investigations, or else he is embellishing the facts in an attempt to impress you. Regardless, if he is telling you the truth I wouldn’t confide anything about myself to personal with him knowing he’s a blowhard. That’s a complete violation of code of ethics, unless you don’t believe in a fiduciary standard. It doesn’t matter, rhetoric plays no part on business.

I don’t know the details of the relationship with your “wealth advisor”, but if what you say is true then you guys better be real trusting of each other like best friends.

You can Pooh Pooh my code of ethics breach, since I didn’t hear it first hand but that is some deeply personal stuff he is sharing.

^^^Noo shit

I get what you guys are saying about the financial advisor. Though I have a hard time (cynical, jaded?) thinking that either people in finance don't 1) exploit the obvious financial illiteracy of some of us for their gain and 2) aren't rent-seeking assholes. But meat72 seems cool.

Seriously why does finance pay so well? It's not like you guys have to pass E&M or other courses with bone crushing calculus, no? just kidding. ducks

@Dominic77 said "Seriously why does finance pay so well?"

Always remember, salaries are dependent on how much supply and demand there is for the service - not merely on how difficult it is to provide the service or how much education is required. That's one of the reasons why kindergarten teachers make so much less than hedge fund managers. I'm sure they're both hard jobs, but there are far more people who are willing and able to teach kindergarteners than there are people who can successfully manage a hedge fund.

Lot of truth in what you two have said Dominic and BHo.

Like many things in life finance is more political than it should be. If you have any merit to your abilities there is no use in promoting because the grunt work is done by those with merit. The higher ups are focused on quid pro quo activities, and if you’re out of it then no luck.

Personal finance is an easy formula that you don’t need an FA to figure it out for you. Simply save as much as you can and live below your means while trying to earn as much as you can. They disguise their services with smoke and mirrors, and mostly sell you the sizzle with a cheap ass piece of steak full of gristle and fat, and it’s not rib eye.

I’ve got stories that will shock you, then it will bore you to death because they all start repeating themselves in theme.

BHF: NAFTA has the ability to pass through goods from other countries baked into the agreement. We can’t appeal it because the flawed agreement explicitly allows it.

Also, there is a reason we are blocking appointments to WTO appellate judges. They’ve had an anti-US bias, so there isn’t relief to be found there.

Meat72, there no much to personal finance. I just had to get raked over the coals here to see where I was going wrong. I probably gave my FA @the bank too hard of a time since he and the other FA guy there said: 1) I was the only guy of my type that he’s seen come in and talk without having large credit card debt and 2) for example his wife has just bought a $2,000 tv with zero percent interest on a new Best Buy store card, so he wondered what my secret was. Because she just wouldn’t, that’s why. I got a little disillusioned that he was human, too. With faults.

But mostly it was because I hadn’t saved enough after 7 months so I postponed the next meeting. But I’m saving more now, more than a $100 check but a little less than 10% that I wanted to see if I could squeeze for. So Tuscl has been helpful. :)

^^^There is NOT MUCH ... (typo)

@mark94,

We don't need to appeal anything because our customs inspectors can simply stop the imports at the border. Mislabeled products get sent back. That's part of the deal. And even if Nafta didn't exist, the WTO also has strict rules about national origin labeling.

But I know, you're actually talking about ingredients and components, not mislabeled products, right? Unfortunately, that's a nonsensical standard: you're saying that all of the ingredients and components of a product should have to be domestically produced in Canada or Mexico in order to qualify for exemption from tariffs. But that would negate the entire purpose of the trade deal. It would grind international trade to a halt.

It's like when Milton Friedman talked about pencil manufacturing in the video "I, Pencil" (based on Leonard Read's brief essay):

youtu.be

The point of trade is to be able to get what you need from wherever it can be produced for the best price... not to maintain employment in the steel industry, which has had problems for over a century.

Also, if the WTO has an anti-US bias, you're going to have to explain to me why America wins almost 90% of the disputes that it brings... while China only wins about 66% of its disputes.

Do you really want to be on the same side as these people?:

google.com

And against these people?:

lewrockwell.com

lewrockwell.com

doc.cat-v.org

Rate moves have been quite tepid due to low inflation expectations. If the Fed gives hints of tightening further after their meeting, which they will, but to what degree? The volatility will return.

Funny that the VIX jumped this morning by nearly 5%, but equities held. The rate story looms.

^^^

If you say so. Listen, if you're trying to piece together a trading strategy based solely on what the Fed is going to do next, you're really just relying on luck. You'll never have an edge. You might as well place bets on whether the groundhog is going to see its shadow in February.

"Holy shit, interest rates may go up an extra 25 basis points this year, I had better sell all my positions fast," said no one. Ever. Besides, interest rates going up is OLD NEWS. It's been priced in for years.

Just out of curiosity @BHF where bis the strategy you follow you seem to be like mark94 all over the place even being contrarian, when it seems like there is a consensus. I actually agree with Meat when it comes to the market more than anybody else here he is pretty consistent which is the true way for any value investor to make gains. BTW if you don't keep an eye on the VIX you'll get burned in this environment, nothing stands in the way of a stampede.

@twentyfive,

To be clear, I'm not a day trader. And I stopped picking individual stocks years ago. I prefer index ETFs now, but I haven't bought anything in a long time. I still have lots of individual stocks left over from years ago. (In fact, I'll probably never be able to get out of some of my natural gas-related positions, to give one example.)

But the number one rule I follow is to sell gradually into a big run-up and to buy gradually into a big down-move. I was buying aggressively in 2008 and 2009. I missed the downswing in 2011, but then I sold things selectively from 2013 to 2016. I've been scaling out a little more aggresssively during the last six months of 2017.

You can't necessarily do this with individual stocks; when individual stocks are heading down, it's often for a good reason, and they may even go to zero. But the broader market is a different story. That's why I like index ETFs: the market will never go to zero. It always bounces back eventually, it's just a question of when, so you can always feel safe buying the dips and scaling in on the way down.

Anyway, I don't have an indicator that I watch. The market IS the indicator! If you pick an indicator for buy and sell signals, other people will know about it, too, and pretty soon you'll need another indicator to predict your original indicator! Also, I know that old news doesn't move the market. And rising interest rates are old news now - a lagging indicator in the truest sense. It would be a different story if the Fed came out and said they were raising rates by 100 basis points all at once. That would be very unexpected. But a gradual firming and routine quarter point rate hikes? No one cares about that anymore. In fact, it's a good thing. Gradually rising rates is confirmation that the economy is strengthening, and that's good. Will the Fed get it wrong and overshoot? They almost always do. But the market already knows that and it's already baked into the cake.

Trump's protectionist moves are a different story because they are based on the whims of one man, and are thus inherently unpredictable. The market hates uncertainty. Some people would argue that Trump's trade protectionism is old news, too. After all, he ran on a protectionist platform. But it seems that no one took him seriously until very recently when he made his comments at Davos. Market participants always thought that Trump was saying one thing to the elites while saying something different to the rubes back home. But in Davos he showed that he was a true believer and that he couldn't be controlled by the "globalists" in his cabinet.

After Trump made his comments on Davos about withdrawing from Nafta on 1/26/18, a guy who works on a trading desk at the bank where I used to work sent me a message saying something like "holy shit, is this moron really serious about pulling us out of Nafta? Look at what he just said in Davos." He's a professional with a Bloomberg wire subscription who is glued to his terminal from morning to evening. Guys like that will always get the news long before we do. And they'll get the real news. Not just the old recycled shit that gets broadcast on CNBC.

So it seems that Trump's comments were taken seriously and that they soured the mood somewhat on the street. He followed them up a few weeks later by applying steel and aluminum tariffs, as if to emphasize that he meant what he'd said. Protectionism is bad because the entire global economy is based on trade liberalization.

For the record, I don't think Trump's tariffs will stand for long at the WTO. And if he does pull out of Nafta, the market will go nuts for a while as they re-price the odds from, let's say, 50% to 100%, but it won't matter because I believe we'll immediately begin to craft new trade deals that will look almost identical to Nafta. So I'm not really worried. I mean, if this is what it takes to spark a bear market, then that's good, too... it'll give me another buying opportunity. I could be wrong. Maybe we'll have a real trade war. But one way or another, I know that the market is far more worried about trade protectionism right now than it is about interest rates. And I think it shouldn't be too worried just yet about the former and not at all about the latter.

^^^Reading this you are all over the place, I have been invested since the late 90s never had a stock go to zero on me if you look at an overall picture i have consistently made money some years more some years less but since 97 only one year (2008) did I have an overall loss and by 2010 had made it all back with some major gains. my portfolio is about 68 percent invested in individual equities about 18 percent in bonds, the balance in mutual funds and alternative investments. Additionally I own some income producing real estate, (all commercial) my home has a mortgage fixed at 2.35 % which I would have paid off if there was any sense to it. Anyway never bothered with daytrading it seemed like a suckers bet and still does. One last point about 75% of my equities are in U.S. companies and I rebalance every 90 days or so, seems to me you are just too hung up and worrying about things you have no control over, I prefer to focus energy on things I can control, it"s worked for me for over thirty years so I'll just stick with it.

^^^

Well, believe what you want. But just because you've never had a stock go to zero, that doesn't mean that they can't go to zero (or simply decline and never recover). But if you re-read what I wrote you'll see that I'm specifically NOT worried about things that are beyond my control. In fact, as I said, I would actually welcome a bear market as a buying opportunity, no matter what causes it. I'm not really making any predictions. The whole point of this conversation is that Meat believes that the recent market turbulence was caused by a small move in interest rates. And I disagree.

I think Occam’s razor is a lesson to apply with this discusion BHO. You can try to figure on many things, but the simplest answer is likely the best solution.

Fed will raise today, and language will point to 2 more this year. So what?! The long end not keeping up with the short end of the curve as far as rates go will be widely watched for signs of demise when it comes to equities.

Of course, in the same vein with due respect to simplicity, those investors who leave their allocations alone and ride out any turbulence will reap large rewards. The thing about getting out, is you have to figure out when to get back in, and that task is more difficult than avoiding the downturn.

Boy, I guess interest rates must have really gone up a lot today for the market to be down this much, right? ROFLMAO JK

This is Trumps doing 100%, goes to show he’s a fucking jackass. This will cost him the midterms and his re-election is going noplace.

HoFactory, you win the argument for today which is one trading day out of nearly 280 in the year, so way to selectively find your time to make a point.

Guaranteed if the yield curve continues to flatten, which was the big story as it pertains to interest rates, there will be more hell to pay. The 10 year dropped, but did you see any movement on the 3 month yield? No you didn’t, which has been my story that I’ve repeated several times in this thread. The closer the 10 yr and 3 month get, the scarier this equity drop can get.

By the way, like all recessions, we don’t know when they hit, but when they do hit the markets the recession is over nearly as fast as they start

^^^

This is hardly the first time that we've witnessed a big selloff in equities without a corresponding increase in interest rates. It happens all the time. Regardless, in fairness, you have mentioned the yield curve flattening several times. But you've also mentioned the yield on the 10-year bond as being an important indicator to watch.

In the opening post, you said that rising interest rates were the cause of the correction. Then on 2/21, you said:

"10 year yield hits 4 year high after Fed announces continued rate hikes. No shock to see the market sell off on that bit of news."

Subsequently, on 3/1, you said, in responding to me:

"HoFactory, interest rates are exactly where they’ve been since January 2015, at least on the widely viewed 10 year treasury."

Listen, before anyone gets confused, let me just say once again that I fully agree that interest rates are an extremely important component in pricing financial instruments. And I also believe that only the market can ever truly know how high or how low interest rates should be at any given time. Twelve bureaucrats sitting in a room in Washington are a poor substitute for the wisdom of the market. But since bureaucrats have been given responsibility for setting short-term interest rates in this country, mistakes often happen and rates will frequently be set at inappropriate levels (which can cause market turbulence). Lastly, I would also say that I agree that the yield curve is somewhat flatter today than it was a year or two ago, and that a flat yield curve is often a precursor to a bear market in equities.

Having said that, I would also point out that a flat yield curve itself is not the CAUSE of a bear market, it is a symptom. Investor behavior is the cause. When investors sell stocks in anticipation of a bear market, they will often simultaneously buy long-term government bonds as a place to stash their money and ride out the coming downturn. Typically, this occurs at the end of the business cycle, as the Federal Reserve is still raising short-term rates into an economic expansion. Hence, the flat yield curve.

Once again, in my view, the yield curve does not cause the downturn, it merely coincides with it. And higher interest rates do not automatically cause anything. Here's the thing: both higher interest rates and tariffs mean higher prices for consumers and businesses, which is bad for the stock market and the economy. The difference is that the tariffs are not predictable, whereas everyone and their mother is well aware that interest rates are on their way upward, as I've said a thousand times in this thread. Also, the market can push interest rates higher on its own (with or without the Federal Reserve), but only the government can apply a tariff. That's a big difference. And that, in a nutshell, is why I don't believe that higher interest rates on their own could have possibly sparked this sell-off.

What I didn't like was not hearing about the 60 billion in tariffs until 5 pm or after the regular market closed. The least Trump and the US media could do would be report between 1230 and 3 pm so US investors can make money or cut their losses before Asian and European traders sell our market short making money at the expense of Americans who didnt get to sell until today. That's US officials making things worse for Americans.

If I had heard this news yesterday at 2 or 3 pm before other people around the world did, would have sold one stock and bought a lot of another to help me recoup losses from previous trump live announcements. Oh well. Millions of Americans will blame trump now for stocks going down if they don't recover. Trump is adding uncertainty. No one knows what else he has in store. I thought China tariffs were small in comparison. What tariffs will Europe add now? Or Brazil or Canada? Not knowing makes people hold off buying stocks.

It’s not The tariffs completely although they don’t help, the real problem is the refusal of POTUS to listen to anything except the voices in his head, creating uncertainty and causing chaos. The only thing to do right now is hope this moron loses the next election and ride this bear that the motherfucker seems determined to let out of the cage.

^^^

We should be fair to Trump: although I do believe that the tariffs are causing the turbulence in the market (and who knows, they may even lead to a bear market for all I know), I also believe that the market would never have gotten this high in the first place were it not for Trump's election. The anticipation of tax cuts and deregulation were rocket fuel for the market throughout late 2016 and 2017.

Also in my opinion, this will not cost his party the midterms - the GOP was already going to lose the House and possibly the Senate, no matter what Trump does. On the other hand, I think he's actually well-positioned to win reelection in 2020. Things could change, but as of now I'd give him almost 50% odds. One of several things protecting Trump is that the public generally supports his tariffs, and the average person really does believe that we're being taken advantage of by every foreign country on earth. We keep electing economic illiterates because we are a nation of economic illiterates.

Yeah.....umm I’m gonna have to ask you to come in on Saturday and resubmit your TPS reports on your interest rate summation, yeah....that’ll be great.

The yield curve flattens, and equities drop. All rates drop across the board, and a big rebound on the final day of the quarter. I truly believe a recession is at least 2 years away, but because rates are still on the forefront of investors minds, this continues to be the cause for volatility. No political headlines nes with trade wars this week, and the only consistent theme this far for 2018 has been rates. It will continue as the story unfolds over the next two years.

Enjoy the ride, we will still see higher highs but rockier rides before the equity markets drop 20% more, I’m guessing that will happen next year.

Bump!

Even more discussions about interest rates gleaming headlines lately. Hold on tight as this thing is about ready to get started! My hope is that the recession which eventually comes within the next two years is a quick one.

FRED 2s10s indicates it will occur sometime between January 2019 and mid-2022.

Like they say about the renowned economist, he predicted 8 of the last 2 recessions.

Interest rates can go up without triggering a recession. As long as interest rates accurately reflect the underlying economy, things will be fine. It’s only when rates get ahead of the economy that trouble occurs.

^^

mark94's comment is exactly 100% correct. I would just add that, so long as interest rates are set by bureaucrats rather than by market participants, it's roughly 50-50 odds that they will get it wrong in any given business cycle. But a few basis points just isn't a serious threat. It's like a tick on an elephant. Give it time. The Fed will have plenty of future opportunities to kill the equity market.

I still think the most recent market swoon was brought to us courtesy of anti-trade actions and rhetoric rather than by interest rates. And I personally counted many days in which both the market and interest rates simultaneously went up. I also noted several big down days when interest rates were flat. Of course, c Confirmation Bias dictates that we'll all see what we want to see and we'll ignore what we don't. I'm not immune to it.

My question to Meat72 is, how do you know that interest rates are specifically dictating the stock market's movements? How do you know they aren't both reacting to something else? Post hoc ergo propter hoc is a logical fallacy, after all.

"It’s only when rates get ahead of the economy that trouble occurs."

Is there an ongoing footrace between rates and economy? What does this "ahead of" mean?

^mark 94 is up to his old tricks making no prediction, predictions.

@FTS,

It means that if rates are pushed too high in a weakening economy, or kept too low for too long in a strengthening economy, the end result will be a deeper recession or higher inflation than we otherwise would have had, respectively. The end result will also be the wrong amount of investment in the wrong asset classes at the wrong time and the wrong price. Only the Federal Reserve can cause this. The market can't pick the wrong interest rate because whatever rate the market chooses is by definition the correct rate. A market-based interest rate may not produce a desired public policy outcome, but it will be the ideal rate given current circumstances because of the market's price discovery process.

@Burlington

I've been listening to Peter Schiff for a few years, so I'm familiar with everything you just wrote. I was just being a smart ass trying to give mark94 some shit for not being precise in his writing. Guess it didn't come across well.

Incidentally, the bi-partisan reform of Dodd Frank will have a huge, long lasting, impact on the economy. It will rev up the economy, especially among small and mid-size businesses. That will continue to push interest rates higher which, in this case, is a sign of strength, not a recession trigger.

Another content-free post from @Mark93 -- presumably something he's parroting from Fox News. Watering down Dodd-Frank is probably a bad idea, and we won't really know if doing away with bank stress-tests is a good idea until the next financial crisis hits. Anything and everything enacted during the Obama years is a target for Trump because of his own fragile ego.

..and everyone knows that the financial crisis was caused by government lending to the poor. So why bother with financial regulation?

@mark94, why do you say an increase in interest rates would not trigger a recession (i.e. "it's different this time"), despite the fact that our debt-to-gdp is over 100%?

The stock market's down today and so are interest rates... again

@RandomMember,

I really want to understand how other people think about policy and politics. I tried my best to understand how mark94, SJG, twentyfive, Dominic, and various other characters here view the political system. So in keeping with that, exactly what part of Dodd-Frank do you think would prevent a crisis from happening? And are you sure that's the part that's being effected by the proposed reforms? Specifically, what kind of regulation could have prevented the events of 2007-2008?

@Burlington: the last time we got into a long discussion about the financial crisis you would skirt away from, and dance around, simple direct questions. Hard-core libertarians are unable to accept the fact that the crisis was caused by a lack of government regulation; hard-core libertarians are unable to acknowledge that taxpayers were forced to bail out institutions like AIG that were too big to fail. Heaven knows how much worse the crisis would have been without a competent Federal Reserve.

There are certain things I take as a litmus test to decide whether someone is capable of rational thought. Among them:

(1) Do you think Obama was born in Kenya (2) Do you think that climate change is a hoax? (3) Do you think the Community Reinvestment Act caused the financial crisis? (4) Do you think we should abolish the Federal Reserve and go back to the gold standard? (5) Do you think it was a mistake to bail out large financial institions at taxpayer expense to avoid a catastrophy?

It's items like (3),(4),(5) that lead me to believe that hard-core libertarianism is closer to a religious cult than a political ideology. Especially item (4) and it's very hard to find a mainstream economist that believes in the gold standard.

The rollback of Dodd-Frank apparently affects only smaller banks. It's more of a tweak than a dismantling of the whole thing -- and I'm happy about that. The banking system and the recovery is doing just fine and any rollback of Dodd-Frank is probably unnecessary.

..and, no, I haven't read all 2300 pages of Dodd/Frank and I couldn't tell you in precise mathematical detail how it prevents the next financial crisis. Hopefully an army of economics PhDs were involved in the construction of Dodd/Frank. I can tell you with certainty that Trump is clueless about the subject.

^^ Q: how do you demonstrate to somebody that Keynesian economics is shit? A: show them a chart of the USD priced in gold.

University of Chicago poll of about 40 economists from basically every one of our elite schools. Not a single one endorses the gold standard:

igmchicago.org

Between now and November, four things will happen

1. We will reach agreement with North Korea for a verifiable de-nuclearization
2. The economy will continue to show 3%-4% growth
3. Justice Kennedy will retire, locking in a conservative Supreme Court for the next 20 years
4. The Spygate assault on the Trump campaign will be proven true. Many Obama officials will go to jail and Mueller will shut down his investigation.

This will result in Trump favorability above 50% and a gain of 5-8 Senate seats for Republicans, all of them Trump supporters. And, this will allow Trump to pass the final elements of his agenda in 2019.

@Random, you could ask 100 Keynesian economists if they agree with John Keynes, if they say yes it doesn’t really imply anything. You can also ask a Christian if he believes in the saving power of Jesus... doesn’t imply much either.

Looking at a 100 year chart of the USD priced in gold, I would say the chart implies quite a bit.

^^ Well I guess so, if you ignore the fact that U Chicago has more economics Nobel Prize winners than any university in the country. And if you ignore the fact that U Chicago was known, at least at one time, for rejecting Keynesian economics. The list in the poll reads as a who's-who in economics including several Nobel Prize winners. In case I haven't made it abundantly clear, returning to the gold standard is regarded as quackery to almost every single academic economist. It's a relic of a bygone era and will never return.

@Mark93: "Spygate"

"Spygate" is nothing more than a conspiracy theory, consisting of unconfirmed accusations. Meuller and Rosenstein are Republicans trying to do their job; this is not partisan witch hunt. Trump willingly spreads lies and it gets picked up by right-wing media like Fox and Breitbart. From there gullible, stupid, people interpret the conspiracy theories as real news. It works! Just look at @Mark93.

Relic of a bygone era? Dude, how old are you? There are many regulars on this site who were alive when the US had a gold standard.

I’m not saying that going to a gold standard would fix the economy or create a utopia. IMO, using a fiat currency that is not fixed is a worse alternative.

Geezaloo talk about old timers debating, the merits of the gold standard, I guess off you live long enough everything comes back, what’s next bell bottom jeans, oh my bad we haven’t gotten to zoot suits yes. FWIW we have computers now that can fit in your shirt pocket, leave the abacus at home or donate it to a museum.

The draft of the IG report, dealing with Hillary email and Spygate, is complete and being circulated for final changes. On June 5, the Senate Judiciary committee is holding a public hearing on the report. One of the witnesses will be a high level former FBI official who was at the center of all of this wrong doing. He has struck a deal and will tell all. On that day, all will be revealed about Obama dirty tricks.

@RandomMember,

So you believe that banks would still have made millions of loans to people who obviously couldn't afford to pay them back, on real estate that was being sold at unrealistic prices, with no documentation of income or assets, even if the government hadn't been involved, demanding more subprime loans and implicitly backstopping the banks? Well I don't. But that wasn't really what I was asking.

I'm glad that you recognize that tinkering with Dodd-Frank won't really affect large banks. Remember, since the financial crisis, we've seen lots of financial industry consolidation. And there are several reasons for why. One of the reasons is that only large banks have the compliance and regulatory staff and resources necessary to study and respond to a 2,000+ page bill (especially a bill that acknowledges that essential regulations will be written as we go along, ex post facto). And the second reason is that interest rates have been kept so low for so long, that it's relatively cheap for large companies to borrow money to buy smaller ones.

Which brings me to the gold standard (since you brought it up). I have no idea if a gold standard would be more "effective" than fiat currency. I think it would be, but I don't know for certain. A gold standard has some drawbacks. But so does fiat currency. What are the drawbacks of the gold standard? Well, for starters, I don't know how the money supply would ever grow if we don't discover more supplies of gold. And conversely, if we discover lots of gold, the money supply could grow unsustainably. Imperial Spain dealt with problems like these 3 or 400 years ago, except that they were mostly mining silver.

By comparison, what are the problems of a fiat currency? Well, obviously, it's subject to political chicanery. And it tends to decline in value over time. So no currency regime is perfect.

Maybe gold isn't the right thing to back our currency with. I really don't know. Maybe a basket of commodities would be better. Or maybe we should have an algorithm to determine the money supply. Milton Friedman (a Nobel Prize winner from the University of Chicago) said that the Federal Reserve could only work in theory if human beings were replaced by robots. So maybe that's the solution LOL. I have no clue. What I do know is that a bunch of political appointees sitting in a building in Washington should not be responsible for setting interest rates. So I would absolutely abolish the Federal Reserve. But what kind of currency system we should replace it with is an open question.

The main problem with debating policy matters such as this is that you and I (and most economists) are talking about vastly different things. I want a currency that is "accurate" and "moral." In other words, I want a dollar to be worth roughly the same thing in 2018 as it was in 1918, and I don't want to cheat savers with insidious inflation. By contrast, you (and most economists) are talking about whether a currency is flexible and efficient. Specifically, they want a currency that can be altered and tweaked as needs dictate, to respond to economic "crises" and to implement public policy proposals. So obviously we disagree about what kind of currency we should have.

Having said that, I must say, if you live by the sword, you die by the sword: economists may indeed oppose the gold standard, but they also generally believe that tariffs, taxes, and minimum wages distort the market. And economics is easily the most politicized academic discipline. When you rely heavily on the opinions of academics, you have to take the good with the bad.

@mark94,

I usually have to pay a woman a few hundred dollars to engage in this much fantasy LOL. Seriously, I hope you'll be proven right about at least a few of these predictions. But as of now, I'm extremely skeptical.

@Burlington: "So you believe that banks would still have made millions of loans to people who obviously couldn't afford to pay them back, on real estate that was being sold at unrealistic prices,"

What's so infuriating about you @Burlington is that you spin exactly the same false narratives no matter how many times I point out that your facts are wrong. About 85% of subprime mortgages at the height of the boom were made by NON-BANK ORIGINATORS. They simply sold the bad mortgages to wall-street and wall street securitized the bad mortgages and sold them off to investors. Non-bank originators were not under federal regulations. This is why we need Dodd/Frank and government oversight. If you're going to argue this point over and over then get your facts straight. This is why I say hard-core libertarianism is cult-like.

The housing bubble was world-wide. Was the housing bubble in Spain or Australia caused by Fannie and Freddie and the CRA, too?

I’m on record. June 5 will be the first day to see whether it’s fantasy or reality.

The biggest scam in the country is the suburban real estate market, always trying to distinguish good neighborhoods from bad neighborhoods. And what does this come down to? Its the people who live there, and more than anything else, this is racial.

All throughout the county, and drawing upon law enforcement and all governmental authority.

San Jose is not suburban, but it still has large suburban like areas and that kind of politics can still be in play.

The more inflated an area is, the more investment they have in fighting to keep it that way.

SJG

@RandomMember,

Yes, we've been down this road before. But even if 100% of loans had been made by non-bank lenders, I don't see how it would make a difference: non-bank lenders only made the loans in the first place because they knew that the banks would buy them. Non-bank lenders usually lack the capital to hold mortgages indefinitely, so they routinely sell them as part of their business models. Banks bought millions of these loans because they were told by the GSEs that Fannie and Freddie would buy whatever junk the banks would sell.

And the GSEs demanded lots and lots of sub-prime mortgages because the Department of Housing and Urban Development told them to increase subprime loans as a percentage of their respective portfolios. This seems to have been done for political/public policy reasons. Both political parties tend to believe that more home ownership is a good thing, especially among lower income strata. This was a component of George W. Bush's so-called Ownership Society, for example (although the first big push seems to have happened during the Clinton years).

Those "investors" you referred to were mostly hedge funds, mutual funds, and pension funds. And they only bought those crap loans because the rating agencies told them that they were safe. The rating agencies, in turn, believed that these were safe investments at least in part because of the implicit federal government guarantee. In other words, everyone believed that mortgage loans were about as safe as Treasury Bonds, only better, because in addition to being backed by the taxpayer directly, they also had the collateral of the underlying hard asset (namely the houses themselves). The historical interest rate spreads tell the story.

I don't know what would make you think that non-bank lenders aren't governed by federal regulations. That's so ridiculous. Almost every business in America is governed by federal regulations. Non-bank lenders aren't treated exactly the same as actual commercial banks, of course, but they are still heavily regulated. And the loans they ultimately sell to banks have to meet certain Federal standards. I know you're not an expert in this matter (and neither am I, of course) but I really would expect every adult to know this basic fact. I've seen mortgages underwritten by banks and I've seen mortgages underwritten by non-bank entities, and I can tell you that the paperwork is overwhelming in both cases. And every single piece of paper is the direct result of a regulation, about half of which are federal. That's my position and I believe it to be the truth. I'm not taking this as an article of "faith" - I've seen it with my own two eyes. But feel free to believe whatever you want.

You say that libertarianism is a cult. Well, one of the hallmarks of a cult is when its followers believe that they have all the answers and that they are always right about everything. Speaking for myself, I'm nowhere near as certain about public policy as you are, for example. I can't speak for all libertarians, but I definitely don't have all the answers. For all I know, even under a totally deregulated economy, we might still have had a financial crisis in 2008. It's totally possible. But please don't tell me that we didn't have heavy regulations on the financial and real estate industries in 2008 - that simply isn't true. That much I know. And none of this, of course, has anything to do with my original questions. What I'm asking is, what regulations would you like to see? What would work for you? What exactly would have prevented a crisis?

We should peg the USD to bitcoin.

NOT

Bitcoin is ripe for another major tumble.

@mark94,

Well, I wasn't referring to the hearings. I meant about Ruth Bader Ginsburg and a Republican landslide in the Senate, etc. It seems very far-fetched to me. But then, you were basically correct about Trump's rising approval ratings, so far.

Just another daily update for Meat. The stock market's up today... and so are interest rates. Odd, don't you think? ;)

Sooner all of these markets crash and stay crashed, the better.

Just don't walk under high rises when it is happening.

SJG

^^^ You can’t comment on my discussion thread if you have me placed on ignore, SJG. What’s the matter, you haven’t suffered enough beatings as TUSCL’s #1 punching bag?

@Burlington: "Banks bought millions of these loans because they were told by the GSEs that Fannie and Freddie would buy whatever junk the banks would sell."

This discussion is a carbon-copy of the last one where I tried to list the chain of events in the most succinct way possible, and you respond with an 8000 word essay, missing key points.

The bulk of mortgages were securitzed by private-label firms during the financial crisis -- not by Fannie and Freddie. In each step of the chain, companies maximized their profit and minimized risk, because that's what companies are supposed to do under American capitalism:

(1) Non-bank originators made crap loans because they were immediately sold to wall street firms for securitization.

(2) Wall street firms securitzed crap loans and sold them them to pension and hedge funds.

(3) Companies like AIG insured the crap securities with credit default swaps to the tune of about $4 Trillion with almost no cash reserves to back it up.

There was a parallel securitizaion path throuth the GSE, but it was much smaller in volume durint the financial crisis. Do you understand that last sentence? Because I'm repeating myself for the 10th time. The bulk of the origination and securitization took place in the shadow banking system.

Another point: Most of the defaults occured in high-priced areas of California, Florida, and Arizona -- not in inner cities that what have benefited from the CRA. For example I picked up an 8500 sft custom home out in the suburbs at half price late in 2009.

In a libertarian fantasy world, we would simply let companies like AIG implode and all the other risk takers in the chain, too. But in the real world the government had to bail them out to prevent a spectacular financial crisis. In a libertarian fantasy world the crisis was caused by govenement lending to the poor; in reality it was a lack of regulation on derivatives that caused the crisis.

We had masters like Bernanke and Fisher during the last crisis. Under Trump we have a Fed chair (Powell) who's a lawyer and not even an economist. Heaven help us if we run into another crisis.

Anyway, that's it @Burlington. In the future I'll just crack a joke about Ayn Rand and the rest of the Randoids on TUSCL. There's something about strip clubs that attract hard-core, fringe, libertarians.

^You forgot to mention the fact that the regulators were involved in every step of the way, and intentionally overlooked the obvious fraud, that the non bank loan originators coached this fraud through every step of the way. I mean they actually filled out the paperwork to make them pass the trifling requirements that did exist.

@RandomMember,

Hypothetically, even if the GSEs never bought a single loan, the damage they and HUD did through moral suasion alone was enormous. Just them asking the banking community to make more subprime loans was enough to cause a serious problem. If I had been a mortgage banker at the time, listening to, say Andrew Cuomo give a speech as HUD Secretary, my attitude would have been "Well, if subprime is good enough for Uncle Sam, then it's good enough for me, too."

I don't think specifically lending to the poor was a problem at all. A borrower could earn a million dollars a year, and still not be able to afford his mortgage if the interest payments alone are, let's say, half a million dollars in an ARM.

Does this mean that speculative bubbles never happen on their own, without the help of govt interference? Of course not. I'm pretty sure that the South Seas bubble and the Dutch Tulip bubble are prime examples. And there's plenty of other examples, too. I just don't think the mortgage crisis is one of them. The government has its fingerprints all over this one. But you're still not answering my question: what kind of regulation would help to prevent this?

Anyway, as for TUSCL being full of libertarians, here's a cheat sheet for you: if someone says that they want to deport all illegal immigrants to preserve "American culture," or thinks that tariffs and trade wars are good ideas, or thinks that homosexuality is responsible for the decay of western civilization, or thinks that drug dealers should all be summarily executed, or thinks that we need a more assertive foreign policy especially in the Middle East and Asia, or thinks that we need more background checks on gun purchasers, or thinks that we should only legalize prostitution "as long as it doesn't cause too much societal harm,"... well, these are pretty good indications that you're not talking to a libertarian. Even in politics, words still have meaning. Just saying.

@twentyfive,

This comports with my understanding of the crisis as well.

Daily update for Meat: market down, interest rates flat to slightly up.

Bring it on down baby!

SJG

“the crisis was caused by a lack of government regulation.”

We are fools for accepting such a notion as even being remotely possible. A lack of a thing cannot itself be a cause of anything, namely because the thing is not. The thing in question is not. It doesn’t exist. Therefore, it cannot have an effect. This is especially the case for a lack of rules, or a lack of regulations, because rules are not causal. The enforcers of rules, such as the members of the Justice system, are causal actors. But the mere existence of a rule cannot in itself cause anything.

So, the quoted sentence proposes a notion that is doubly preposterous.

Reason 1 Random 0

@FTS Why doesn’t anyone address the single biggest factor leading up to the crash, the simple fact that the regulations that were there weren’t enforced? You can argue back and forth all day and night, verifiable and provable fraud was committed and no one in a position of oversight has yet been prosecuted !

^^I am not so familiar with the regulations that I can write about the them. But, your statements are consistent with what I have learned about the crisis, so I would tend to sympathize. The fact that nobody went to jail is concerning. Perhaps there was a loophole. The law is quite complicated, IMO.

^this is the real problem we have in financial services, regulations are always playing catch up with these really smart guys, whom for the most part are really greedy fuckers, in the final analysis, criminal behavior is essentially always present, I’ll cite as an example AIGs underwriting department was complicit in those CDS, underwriting standards were virtually ignored in the rush to bundle sup prime mortgages and dress up lame horses as if they were thoroughbreds. That is the essence of fraud, both with intent and malice.

^ The one other thought that occurred to me was there is so much money in plat that the regulators are vastly overmatched, leaving the rest of us at a severe disadvantage.

Unfortunately, I think the blame cannot be placed on any one person, or one category of people (public, government, private, rich, poor). Likewise, I think also that there is not one category of people that is entirely innocent (except, idk, the homeless, monks?). Even the low income families—those that were given these mortgages by those greedy bankers, encouraged by the greedy beaurocrats—even they are not innocent in all of this, despite appearances. A great amount of education or genius is not required for a man to realize that he cannot afford to purchase a $500k house on an annual income of $40,000 and little to no savings. And if the intention of the purchase was to sell it a short time later for a profit (cuz the real estate market is on fire! Woooo!) then it is the purchaser who should suffer the consequences in the event that he underestimated the risk and was therefore unable to sell his home for a profit as he intended.

^ You're points are correct, but the consequences were borne by the taxpayers and it was an issue forced on them, simply the collapse of the entire structure was imminent resulting in a major bailout of those institutions that took it on themselves to play craps with our dollars that they gamed from the system, I mean let’s be real here, they owe you, me, and many others, who basically went about our business and incurred tremendous financial hardship through no fault of our own.

I keep asking the same question and Random keeps avoiding it: what regulations would have prevented the crisis? Anyone else can feel free to answer this question as well. What exactly should the law say? Don't be greedy? Don't be shortsighted? Don't lose money?

The people with the most at stake were the financial institutions, but they still fucked up. Does anyone seriously believe that Lehman and Bear and AIG and Countrywide all wanted it to turn out this way? With lost money, and lost jobs, and lost reputations, and being hated by most Americans, with a sub-rosa class war brewing? You would have to be crazy to think they're happy with the outcome.

The lenders and financiers had all the incentive to get it right and yet they still got it wrong. So what makes anyone believe that a bunch of regulators sitting in a building in Washington (with almost no incentives whatsoever) could possibly get it right?

In a previous discussion, I once posted articles from mainstream sources like CNN and Bloomberg and USA Today, all basically verifying my view of the financial crisis. But Random ignored my sources. Does he believe that CNN and Bloomberg have a secret anti-government axe to grind? Are they all "Randoids," too? LOL

But my personal favorite tactic is when he denigrates Jerome Powell and praises Ben Bernanke. Well, if Powell is so unqualified, I guess Barack Obama shouldn't have nominated him to the Fed 6 years ago. As it stands, yes, Powell isn't an economist, but he has worked in finance for 30 years. My issue with Powell isn't his resume, it's his philosophy.

^If we take everything that you said at face value and never add a new regulation to the mix, how about redress for those that played by the rules from those that intentionally skirted the rules, why are you being so goddamn obstinate! Just address the single question I asked you, IDGAF about Bernanke or Powell, I just want to know why you think those greedy fucks deserve a fucking pass.

^^^ Because we don't write ex post facto laws in this country. If a banker followed all the laws that were in place at the time, why should he now be punished just because the rules have subsequently changed? Most of them didn't break any laws. But those bankers who actually did skirt the rules only did so because they were under pressure from the government to supply more subprime loans. (And yes, this includes non-bank lenders. Random has this strange fantasy that non-bank lenders didn't sell loans to Fannie and Freddie. It isn't true.) If you ask me, the people we should all hate are the politicians who stole our tax dollars and bailed out the banks... not the bankers themselves. Without the politicians, the banks never could have gotten our tax dollars. Only the government has the legal right to steal. But please, feel free to tell me what kind of regulation would prevent such a crisis. Try to be specific.

^You didn’t answer a direct question you just posted the exact same thing you keep posting.

^^^

What I'm saying is that I don't want to punish someone who didn't break any laws or who relied on guidance from the government. If there was no relevant law on the books, then no crime was committed.

Besides, you're a real estate developer, right? So should you be held responsible for all the overbuilding and subsequent price declines and foreclosures that took place in South Florida 10 years ago?

Another daily update for Meat: the stock market was up today and so were bond yields. Any thoughts yet, buddy? Come on, we want to hear you brag about being right again ;)

Also, when will RandomMember and twentyfive answer my simple questions? I answered yours so it's only fair

I’m a contractor self funded when I put up a project it’s my money at risk, your analogy sucks. I answered your question I’m nowhere near Random politically, but he’s honest and understands the issues of the day pretty well, in my estimation. And to prove my point you keep saying the same stupid shit that these guys didn’t break any laws, they most certainly did, there’s no fucking way in hell that an insurance co. like AIG can insure the bundle of mortgages that they did without any fucking assets to back them up, plus bankers like Goldman & Lehman took knowingly bad mortgages, and bundled them for sale to the feds, if you don’t think they broke dozens of laws in the process, you’re delusional. I’m done with this topic, you need to get info from reliable sources not idiots like mark94.

@twentyfive,

What does your own money being at risk have to do with it? Everyone had money at risk (or they were working for someone who had money at risk, or they were risking their shareholder's money, etc.). So were you or were you not building homes in Florida 10 years ago when the bubble burst? And if so, do you therefore believe that you share in the responsibility for real estate prices declining precipitously, leading to millions of foreclosures?

Come on man, if you think the banks are responsible simply for lending money, then surely the homebuilders must be REALLY responsible, since they were the ones who built and sold the houses in the first place, right? They marketed them, they set the inflated prices, they even helped to get people pre-qualified for mortgages. I mean, I don't blame the homebuilders, myself, but if you're going to blame the banks, then how exactly can the homebuilders escape responsibility?

And I would also appreciate it if you would tell me exactly which law was broken. Just because you don't like what they did, that doesn't mean that it was illegal.

NAFTA morphed into a back door for Asia and Europe to avoid Tariffs. Trump knew this from the beginning. That’s why he will kill NAFTA. He is in no hurry to formalize this since all the major investors know this and they have ceased investing in Canada and Mexico. Trudeau’s recent rants reveal that he knows the pain that is coming. He has no way out.

Canada and Mexico have built their trade deals, and economic model, on the basis of their ability to give tariff free access to the US consumer. Once that is closed, their economies will suffer. They are already feeling the pinch as factories start to close and investment dries up. Much of this foreign investment will now find its way to the US.

Yes BHF, I know that free trade is wonderful. But, when China and Europe close their markets to American goods, while flooding the American markets , that is already a trade war. For 50 years, it was a one sided war. We are finally fighting back.

^ This is delusional, here we have a guy thinking Trump is the second coming of Ronald Reagan, but in reality, his hero is Herbert Hoover.

@mark94,

Hypothetically, if everything I've ever said was wrong, and if you're right that NAFTA is somehow just a convenient way for other countries to sell stuff to us with no tariffs... then that must mean we're doing something right! Because we're obviously rich enough to afford to buy all their stuff. I'm satisfied with that arrangement. It's better than the other way around, right?

But seriously, where exactly does this all end? In a dark place, I promise you that. I bet Arizona "loses" when it trades with Texas. I bet New Jersey buys more from New York than it sells back to the Empire State. So should Governor Ducey and Governor Murphy put a stop to all this "theft?" (Thankfully, the Constitution basically prohibits States from blocking trade with each other.)

I bet you also "run a trade deficit" with your local grocery store. You buy lots of things from them, but they buy absolutely nothing from you. Sad! Isn't that unfair trade?

And what about taxes? Many countries have much lower taxes than we do. Does that give them an unfair trade advantage over us? Should we demand that they raise their taxes to conform with ours so that their businesses are on a level playing field with our businesses?

Anyway, I'm not under any illusion that I will ever convince anyone of anything, ever. But here's a brief video on the Republican Party's evolution on trade, courtesy of The Donald:

youtu.be

What does this mean for bitcoin?

Daily update. Stock market higher, long term rates higher, but short term rates lower, meaning that the yield curve is definitely slightly less flat today. So Meat wins one! Only technically, of course, since he initially said that higher rates were responsible for stock market turbulence, and then belatedly changed his story to being about a flattening yield curve. But I'll give him the win today.

Also still waiting on Random and twentyfive to respond ;)

The gap between the 2 and 10 year is narrowing, less than 50 basis points. Once the death cross occurs I’m bailing out of the markets when the short end gets higher than the long end.

The lad could be 6 months to a year after the yield curve flips, so we still got some time left in the later innings of this bull market. Some have been saying 2019-2020 for a significant correction.

BHF: At the margins, you are right. It’s a benefit to consumers to buy cheap goods.

But, we are way beyond the benefit of $300 TVs. We were at, or near, a point where entire industries were disappearing, like steel and aluminum. China’s 2025 plan intends to take over basic technology, like chips, just like they’ve done with Steel. These are huge national security issues.

Plus, regions of the country were facing a permanent unemployed class, as were categories of employment. If you were an unemployed factory worker, the ability to buy cheap at Walmart, or the local Honda dealer, didn’t matter.

The benefit of cheap goods disappears when huge swathes of the population have no prospects for employment, leading to welfare dependence, drug use, and other blights to our culture and national well being.

^Even if you are right your president is concerned with the optics not the root causes, let him concentrate on theft of intellectual properties, and stop his bullshit like Canada has a 270% tariff on dairy, that is factually incorrect and a flat out lie, let him concentrate on his promises, like he will replace ObamaCare with a better cheaper replacement, let him STFU when he says we gave Iran however much money it was it was their own money that we returned. The only blight I see on our culture is his lack of integrity and inability to recognize the truth when he hears it.

@mark94,

The entire basis for this new nationalism is jealousy and gullibility. Western nations seem to have bought into China's propaganda. Only an irrational person would envy a command economy with low standards of living and an abysmal record on human rights, and yet lots of people here in America essentially want us to imitate China. To me China is not a role model. And yes, I know all about their plans for "world domination." When I was a kid, people used to speak in hushed tones about the Japanese and how they were taking over American businesses and they were going to rule the world one day, too. "Japan, Inc.," "The New Empire of the Sun," etc. Not coincidentally, one of the people who bought into this argument at the time, was Donald Trump himself. And how did everything work out for Japan in the end? I'm sure they're fine, but they're just another country today. Nothing special. And you know, the USSR and Nazi Germany also had 5-year industrial plans. Where are they now?

Anyway, I hear this national security argument everywhere nowadays, and it's simply not true. The American military says it only needs 3% of the steel and aluminum we currently produce in order to function at peak capacity. And we still get plenty of our metal from our NATO allies. So even in fantasyland where our entire domestic steel and aluminum industries somehow completely disappear overnight, we would still be perfectly fine from a military standpoint.

Incidentally, I also hear this argument about national security when people talk about American companies being allegedly forced to hand over their trade secrets in exchange for doing business in China. Well firstly, no one puts a gun to their heads: if they don't want to give up their trade secrets, then I guess they should do business elsewhere. They must believe that more money can be made by giving in to Bejing's ridiculous demands, otherwise they wouldn't agree to them. And secondly, if this technology really is essential to national security, then why the hell is it in the hands of some private company that can dispose of it at will?! The whole story is silly.

As for the economic argument, there will always be winners and losers whenever the economy changes, even slightly. Why should our government get to decide who the winners and losers will be?

It's true that we have fewer people employed in steel and aluminum production than we once did, but it's not China's fault. Most of those jobs were lost to automation. And that's a good thing: those were difficult and dangerous jobs. Today there are probably 100 times the number of Americans employed in steel-consuming industries than in steel production. Don't their jobs and livelihoods matter, too? Some of them will eventually be laid off due to higher steel prices caused by the tariffs.

Gordon Chang, an expert on China, speculates that Trump’s goal for North Korea has changed in recent weeks. Many have pointed out that, if our goal is de-nuclearization, meeting Kim before concrete steps make little sense.

Chang agrees, but said all of Trump’s recent moves make sense if the goal is to bring NoKo under the influence of the US, breaking the alliance they have with China. In this case, it would be to our advantage for Kim to keep his Nukes. They would just be pointed in a different direction.

This would be a huge win for Kim and the US. It would be an embarrassing loss for China, crippling their goal of regional dominance.

"...but said all of Trump’s recent moves make sense:"

Why do we have to assume that anything Trump does make sense? This is the same guy who said Mexico will pay for a border wall. Same guy who said we will have a new and improved healthcare system. Never mind N Korea; I think we're at war with Canada now.

nytimes.com

As Trump goes into negotiations with Kim, Trump doesn't have a science adviser with any nuclear experience. Trump is the first president since 1941 to not have a science adviser.

^ive started reducing my asset allocations and will be at 50/50 by the end of the year, to anyone overweighted in equities I would suggest that you take a good hard look at what is happening, slowly, but surely the bear is awakening from his long hibernation.

^A prudent decision, given that the fed will raise rates a couple more times this year. Given that the earnings yield on S&P 500 is about 3-4%, and 10 year treasury yield is at 3%, there it not a lot of room for rates to rise before the “risk free” yield on treasuries becomes more attractive to investors.

I myself will probably move toward a 15/30/30/15/10 domestic/foreign/metals&miners/bonds/cash allocation once the yield curve goes flat.

@mark94,

Who knows, maybe he's right. But keep in mind, Gordon Chang makes his living by keeping us scared of China and North Korea. Plus he has a mixed record of accuracy. Either way, does this sound like a good idea to you? Would you want us to have North Korea as a client state? Would you want to antagonize China this way? I mean, if we're going to antagonize China, why not do it by having more diplomacy with Taiwan, which is a peaceful and largely free country?

One of the great successes of the Cold War was when we began to trade with China. I don't understand why anyone would want to throw that success away. During much of the Cold War we had really dangerous enemies who could do real damage to us. And now, basically, the only real enemies we have left are pathetic countries like North Korea (which absolutely CANNOT hurt us). And yet everyone acts like the summit between Trump and Kim is the equivalent of Reagan meeting with Gorbachev. The media loves a dramatic spectacle. But considering that Trump supporters are quick to accuse the media of peddling "Fake News," they sure do buy into everything that the media tries to sell them.

My guess is the inverted yield curve happens beginning of 2019. 50 basis points is the spread between the 2 year and 10 year, and the fed will raise two to 3 more times in 2018.

Told you so! The pending recession will be shallow and brief. Hoping so.

Here’s a prediction I made 3 weeks ago. With Kennedy’s retirement announcement, the Singapore meeting, the release of the IG report, and the feds projection of 4% growth, it’s looking likely. The generic congressional pols support this swing to a red wave.

——————-

Between now and November, four things will happen

1. We will reach agreement with North Korea for a verifiable de-nuclearization
2. The economy will continue to show 3%-4% growth
3. Justice Kennedy will retire, locking in a conservative Supreme Court for the next 20 years
4. The Spygate assault on the Trump campaign will be proven true. Many Obama officials will go to jail and Mueller will shut down his investigation.

This will result in Trump favorability above 50% and a gain of 5-8 Senate seats for Republicans, all of them Trump supporters. And, this will allow Trump to pass the final elements of his agenda in 2019.

@mark94,

You've been right about Trump's approval rating so far. Of course, one could argue that his numbers had nowhere to go but up. And to be fair, his numbers did actually decline within the past few weeks.

But let's take this one step at a time. I heard about Kennedy's retirement, too. Since you're part of Trump's base, here's my question for you: Do you want a more activist judge or one who practices judicial restraint? I know this is TUSCL, but try to take the question seriously.

Someone in the originalist camp. The commerce clause has been twisted beyond all recognition. Social Security. Medicare. Just exactly what part of the Constitution authorized this ?

Oh, and Ginsburg is 85 and Breyer is 79. If Trump is re-elected, he will likely replace them with conservatives. And, I wouldn’t be surprised if Thomas ( now 70) retired in Trump’s last year. That would leave the Supreme Court 7-2 conservative for 20 years.

I agree, but I think virtually any judge appointed by a Republican president would be an originalist nowadays; after all, they don't want a repeat of David Souter.

You slightly dodged my question, but I can't blame you. As for the debate between activism and restraint, I would just say that the Federalist Society and the Heritage Foundation have changed their judicial philosophies somewhat during the past 35 years. Back then, judges like Robert Bork and Antonin Scalia always advocated judicial restraint.

Compare them with Neil Gorsuch. Gorsuch is basically an activist judge and he especially tends to oppose Executive Branch power. He's a big opponent of so-called Chevron Deference. He often rules against the police and he is an opponent of civil asset forfeiture. He also ruled against the warrantless collection of cell phone GPS locations by the police. And in one high-profile case, he ruled in favor of an illegal immigrant who had been convicted of a crime, making future deportations more difficult. I wonder if Trump knows about any of this LOL.

Anyway, there are some good names on Trump's list of potential judges, namely Don Willett and Senator Mike Lee. We'll see who he picks. Luckily, some of the liberals on the bench are pretty old. But it would be a shame to lose Thomas.

On to the next question: how would an agreement with North Korea be any different from Bill Clinton's agreement or George W. Bush's agreement? Or from the Iran Nuclear Deal, for that matter? And while we're at it, why should we be afraid of a nuclear North Korea at all?

Trump has made it clear that sanctions won’t be eased until AFTER denuclearization. That’s new.

NoKo uses its weapons program to raise cash. That means that any organization with enough cash could buy a nuke and place it in Jerusalem or New York. Mutually assured destruction no longer prevents a nuclear attack.

If a justice opposes prior activism, like civil asset seizure gone wild, I consider that originalism, not activist. A return to the original intent.

Activism and Originalism are not opposites. Activism is the opposite of Restraint (also known as Deference). The primary example of Judicial Restraint in the modern era was when John Roberts famously left ObamaCare intact because he felt it wasn't his place to undo the political process. Personally, I like Gorsuch much better.

Prior to Obama, the only sanctions on NoKo were levied by the EU and the UN (unless you count Harry Truman's sanctions). Rather than easing sanctions, Clinton and Bush offered direct aid in the form of food and fuel. And I'm sure we agree that handing out aid is totally unconstitutional. I would have let them starve and freeze.

But more importantly than avoiding sanctions, the main goal of the Kim regime is to survive. If they sell a nuke to someone who uses it against America, we would trace it and retaliate. And they would not survive.

Also, didn't Trump say that we spend too much money defending the rest of the world? That's one of the things I totally agreed with when he said it. So why would it be our problem if a bomb goes off in Jerusalem? I mean, it would be sad, but why would it be our concern? If you're so concerned with Constitutional Originalism, how exactly is it constitutional for us to be defending Israel?

^Where is aid unconstitutional ? Also how is preserving the peace no matter how uneasy, not in our best interest? That really makes no sense at all.

^ Sure it's good to have peace... but who exactly appointed the US as the peacemaker?

And as for foreign aid, I can't find anything in Article 1, Section 8, that authorizes it. No less an authority than James Madison himself once objected to raising a mere $15,000 to help settle French refugees while he was a congressman, saying that he couldn't find the authority anywhere in the Constitution. If we aren't allowed to help people here, then we certainly aren't allowed to help them overseas. And Madison ought to know about the Constitution... he helped write it.

But let's say it is constitutional somehow. Even if it is, it's definitely against the wishes of the founders. Washington said "It is our true policy to steer clear of permanent alliance with any portion of the foreign world." And Jefferson said "Peace, commerce, and honest friendship with all nations-entangling alliances with none." (Yes, I had to Google those quotes.) So in other words, we should be nice and trade with other countries, but we shouldn't just hand out money (and we shouldn't offer to protect the entire world either).

Not to mention the fact that 9 of the top 10 recipients of foreign aid are countries where the people kind of hate our guts anyway. Seems like a silly policy to me. Would eliminating foreign aid really make much of a difference? No, it's less than 1% of the budget. But it's still wrong in my opinion.

^ I wasn’t asking for your opinion I was asking how is aid unconstitutional ? As far as being a peacemaker if we don’t act who else, maybe you’d like the Chinese or the Russians, to step into the void, and continue their hegemony, with no counterbalance, that would be reassuring.

Like I said, I can't find anything in the Constitution that authorizes foreign aid. And apparently neither could James Madison, and he wrote the damn thing.

The problem with Russia is their thousands of loose nuclear weapons left over from the Soviet Union, not their attempted global hegemony. Modern Russia has an economy the size of Italy's, so I'm not sure how much help they can be to other countries anyway. Besides, trade is the best way to build friendly ties and to help other countries - not aid. That's why China doesn't threaten to nuke us anymore.

^again can you find anything that prohibits aid? Stop being so fucking obstinate, it’s not unconstitutional!!!!

If it's not expressly written in the Constitution, it's probably not constitutional. But I am allowing for the possibility that I'm wrong. And even if I am wrong, I still think foreign aid is a really bad idea.

The tenth amendment: The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

So, if a power is not expressly granted to the federal government by the constitution, the federal government does not have that power. At least, that’s the way it’s supposed to work. I’m still looking for the constitutional clause that allows redistribution of wealth through Social Security and Medicare.

You guys are just trying to prove a negative, there is no prohibition of the U.S. entering into treaties, extending aid, and other such actions that the federal government needs to perform, as part of its obligations to the people, of this country. If it is not expressly forbidden it is not unconstitutional.

@Che,

Right. That's basically what I'm saying. The point is that the Constitution is a limiting document. It limits government power. If it's not specifically enumerated, it's not allowed. But even IF the constitution specifically authorized foreign aid, I would still be against it. And who exactly are the pseudo-intellectuals?

@mark94,

Right, that's basically it. But once again, this makes me wonder why you would want the US to protect Jerusalem.

I guess you don't have any further responses to my points about judicial activism or North Korea. So my next question for you is which 5-8 Senate seats do you think the GOP can realistically flip? You may remember last year when we discussed this, I listed 5 seats that I thought were likely to flip. I've since upgraded that list to six seats... but three of them are already held by Republicans.

This movement in equities prices, do you guys move your 401k asset allocations? I ask because I'm 92% in equities and 75% Domestic stock. Or just stay the course (dollar averaging)

I ask because I have a (very small) small 401k portfolio. And I'm trying to learn this stuff.

75/17/3/4/1 Domestic/Foreign/Bonds/ShortTerm/Other 92% equities up 3.6% since last week.

^Dont know how old you are , I’m guessing early fourties, that mix is a bit high on equities but you have a fairly long time horizon, I’m 64 and currently at 50/50 I moved some cash into CDs temporarily just trying to avoid the drama. But you need to keep in mind my 50% would be a pretty nice portfolio all by itself

Over the decades, anytime I’ve changed my asset allocation, because I thought I knew what was going to happen, it hasn’t worked. IMO, find an asset allocation that makes sense for your circumstance and change it only if your circumstances change, not because you know what the future holds.

Thanks, twentyfive. Thanks, mark94.

I chose these fund allocations back in 2000 when I was 22 and chose the aggressive option. I mostly forgot about the plan or gave up about it in the '00s when it did poorly. Since I'm laid off, I'm waiting to see if and what my new job is before I roll it into the new 401k or do a traditional IRA or a roth IRA. I can't make changes to it without rolling it somewhere first, if I understand 401ks correctly.

You guys have be worried it was gonna tank again, lol.

@Dominic77,

mark94 is offering good advice. Asset reallocation can be risky if it's done in anticipation of future market moves, rather than in response to past market moves. But I still do it, because I'm a gambler. As of today, my IRA and 401K are 100% cash and cash equivalents. Yields are still shitty, but I'm keeping my powder dry. In the taxable account, I still have a lot of equities (KBH, ICE, MWA, GE, a bunch of energy stocks and funds, some shares of a gold etf, etc.) because I'm stubborn.

If you think about the tax code, you'll see that it's more tax efficient in the short term to structure your assets that way: cash in the tax-sheltered accounts and stocks in the taxable accounts. So that's what I do first. Basically, I'm getting into a position to have as much cash as possible for the next 18 months. I'm roughly 50-50 now. Also, I've never bought a bond or a bond fund in my life, but that's probably because rates have been so artificially low for all of my adult life - I really missed the boat on fixed income assets.

^ You can buy utilities and put many of them in the fixed income category, there are plenty of ways to get income without buying bonds.

I used by bicycle up to the bank in elementary school with my allowance and got them to buy me some junk bonds. It was all the rage in the '80s. Rates were higher back then. Every once in a while one would come through and make some money. Though to this day I'm still not sure if they actually bought the bonds of just held my money and gave it back thinking I was a kid and didn't now better. Can elementary school kids buy investments?

I started out so good, now that I look back. It's too bad I got disillusioned and jaded about finance. Set me back 20 years, lol

@BurlingtonHoFactory: do you use Roth IRAs or Roth 401ks? I read it might be better for someone like me to take the hit now (12% bracket) instead of later. Does that factor in? Or are your sheltered accounts truly sheltered in that you'll never pay taxes on them?

@twentyfive,

That's true, and I used to own a bunch of Florida Power and Light, many years ago. But we had an amazing bull market in treasuries that I totally missed out on.

@Dominic77,

I've never converted to a Roth IRA, probably for the same reason that I go to strip clubs and meet with arrangement-girls: I'm short-sighted and I like instant gratification LOL.

I ran the numbers and decided I was too old for a Roth conversion. Not enough years to build up nontaxable balance. Also, I’m not convinced I will be in a higher tax bracket in the future.

I counseled my younger nephew that a Roth made sense for him, at least for part of his savings. That way, he has flexibility in tax planning when he retires.

Dominic, if you’re in your early 40’s and have 20 years to retire with only a small balance in your 401k, you should be 100% in equities and hope the market drops so you can buy into a cheaper entry point. The reason why Mark said his timing method didn’t work is because they rarely do. You have a long time horizon and the market will likely double before you’ll need to withdraw equitiesto live off. Between now and then the market will yo-yo without predictability, other than the fact that the DOW will go from 25k today up to 100k in the year 2040, which is around your retirement age. What’s the worse that could happen in a down market, your $39,000 401k drops to $25,000?

Big deal, your not going to touch that money for 20 years and whenever the market goes down is when people make money. Investors think the way to make money is to protect yourself from losing in the markets. The fact is to make the most over your lifetime is to be continuously invested in the stock market, instead of predicting the market’s direction(bad idea).

Your only determinant for success is how much you’re willing to contribute to your future investing needs.