patrick.net

And so where are we supposed to be now?

Austrians and Keynsiens are both nuts. The vaunted Austrian free market doesn't exist, has never existed, and will never exists. Ask a Keynsien how the debt can increase forever without ever seeing a day of reckoning and it's like listening to my 5 year old explain how the flower vase got broken.

bob2356 says

Austrians and Keynsiens are both nuts. The vaunted Austrian free market doesn't exist, has never existed, and will never exists. Ask a Keynsien how the debt can increase forever without ever seeing a day of reckoning and it's like listening to my 5 year old explain how the flower vase got broken.

Austrians never talked about "the vaunted Austrian free market." Economists of the Austrian School always talked about freer market with less government intervention vs. manipulated market with more government intervention. Both exist and take place at all time. Austrians recognize that the market place is a price discovery and information transmission mechanism. Government intervention only cause noise and impede against both price discovery and information transmission.

The 4 major factors which signal an upcoming bear market:

-higher CPI that includes food and energy
-higher Interest rates (i.e., 10 year Treasury note)
-overly bullish Individual Investor Sentiment (i.e., larger % of bulls compared to bears and neutrals)
-high Shiller PE ratio

By the way, we are close to being 20% above the peak back in 2000 for the S&P 500. If we stay above 20% for at least 3 months then theoretically we should be out of the secular (or long term) bear market.

New Renter says

And so where are we supposed to be now?

It looks like we are at the greed phase based on

http://money.cnn.com/data/fear-and-greed/?iid=INV_Sub

The S&P 500's September 2013 earnings was almost equal with inflation adjustment to its June 2007 earnings (peak level). If interest rates stay low and earnings gradually increase at a greater rate than the stock market, then I suspect we'll stay at the left side of the peak or asset bubble burst for another few years.

Reality says

Austrians never talked about "the vaunted Austrian free market." Economists of the Austrian School always talked about freer market with less government intervention vs. manipulated market with more government intervention.

You need to go reread about the area of consumer sovereignty which is one of the most important tenents of Austrian Economics. Especially as viewed by mises. He was most certainly not talking about less government intervention.

The comparison to the chart in 1929 is false for a few reasons.

In 1929, banks were buying stocks along with everyone else, using margin (credit) and depositor's money.

The margin rules have changed since then as have other rules.

The reason stocks are popular is that interest rates are low. This is so simple it's like gravity but it's sometimes lost in the discussion.

There is a lot of savings out there floating around. It can choose bonds that are paying a little bit or buy dividend stocks.

Debt is still popular, but stocks are also becoming popular for good reason. Which would you rather do: lend money to uncle sam for 3% or buy shares of Apple and make 2.5%?

bob2356 says

Reality says

Austrians never talked about "the vaunted Austrian free market." Economists of the Austrian School always talked about freer market with less government intervention vs. manipulated market with more government intervention.

You need to go reread about the area of consumer sovereignty which is one of the most important tenents of Austrian Economics. Especially as viewed by mises. He was most certainly not talking about less government intervention.

Where did Mises talk about more government intervention to achieve consumer sovereignty? Consumer sovereignty is derived from individual freedom; i.e. less government intervention.

Reality says

Where did Mises talk about more government intervention to achieve consumer sovereignty?

Obviously he didn't, your statement was austrians talked about less government intervention. I haven't read mises since college over 40 years ago but I believe his statement said complete avoidance of governmental interference with the markets. I would believe complete avoidance and less intervention are not mutually compatible.

bob2356 says

Reality says

Where did Mises talk about more government intervention to achieve consumer sovereignty?

Obviously he didn't, your statement was austrians talked about less government intervention. I haven't read mises since college over 40 years ago but I believe his statement said complete avoidance of governmental interference with the markets. I would believe complete avoidance and less intervention are not mutually compatible.

Complete avoidance is the ultimate ideal goal, but in practice that means less intervention at every turn. Why would they be incompatible with each other? Do you also believe that the moral goal of becoming a good/perfect/ideal person is incompatible with the daily practice of becoming a better person?

clambo says

There is a lot of savings out there floating around. It can choose bonds that are paying a little bit or buy dividend stocks.

Debt is still popular, but stocks are also becoming popular for good reason. Which would you rather do: lend money to uncle sam for 3% or buy shares of apple and make 2.5%

That also creates a small problem. If all the savings go into bonds then new industries will have trouble raising the capital needed to compete and expand their industries.

Actually, @clambo, banks ARE gambling with your money, it's just that these days they can't steal it from your deposit account so they borrow it from the Fed at zero interest. As long as all goes well, no harm done. But when TSHTF, who's on the hook? You are, viz a viz, your taxes. So what's the difference? Moral hazard is moral hazard.

In a deflationary collapse everything collapses together, stocks, bonds, housing, gold, silver, commodities... everything, nothing is sacred. The only really safe place will be U.S. dollars under your mattress. Second will be short term U.S. treasuries. So few people understand or believe that. The devastation is going to be incredible as most people will lose all their 401ks, retirement accounts, mutual funds and if Cyprus is any example of what governments are morally capable of, they will steal what they need right from your bank deposits.

So I would argue, not only is this not different from 1929 (before the margin rule changes) , but it is actually much worse since your money is being stolen from you through the front door and the back door.

BTW, when Lehman Brothers and Bear Stearns went belly up, they were leveraged about 30:1. Every major bank and most hedge funds are leveraged at least that today, some (JPM, Citi) even in to 40s. Once the balloon does pop, it will be an explosion on the order of Hiroshima. It's just a matter of time... the question isn't IF but WHEN?

You don't think this might have something to do with higher stock prices?

tatupu70 says

You don't think this might have something to do with higher stock prices?

Of course it does. But look at the shape. It's a bubble and will revert to _below_ the mean on collapse, probably in the 400-500 billion range. Bubbles can last for decades but they all pop eventually. What's keeping this bubble inflated is the same thing that keeps all bubbles inflated, positive endogenous social mood. But once the public figures out they have been duped, that the man behind the curtain isn't really in charge, they will back away from equities like the plague and the "irrational exuberance" being displayed currently will simply vanish along with the faux market values being propped up by that exuberance.

darlag says

It's a bubble and will revert to _below_ the mean on collapse, probably in the
400-500 billion range

huh? Corporate profits are a bubble?

tatupu70 says

huh? Corporate profits are a bubble?

Yes. The profits aren't real. The 'wealth effect' being created by the bubble will ensure that those profits vanish when the next wave of deflationary decline begins. If everyone were to hold their profits in cash that would be different. But they're not. They are buying back their own stock, issuing dividends, passing out bonuses and buying other companies. None of those activities are immune from deflationary collapse.

Relate it to the wealth people thought they had by virtue of the equity in the real estate they owned. Turns out the equity wasn't real and thus neither was their assumed wealth.

darlag says

. The 'wealth effect' being created by the bubble will ensure that those profits vanish when the next wave of deflationary decline begins

Profits will vanish in a deflationary decline no matter what. That's why it's called a decline.

darlag says

They are buying back their own stock, issuing dividends, passing out bonuses and buying other companies. None of those activities are immune from deflationary collapse.

You seem a little confused on the raison d'être of corporations. Corporations exist to maximize return on investment to stockholders. Issuing dividends, buying back stock to increase share prices, and buying other companies to expand are normal day to day activities.

The cash on the sidelines isn't all that real anyway. A lot is overseas and will be taxed at 35% if returned. Then there is debt, there is 1.5 trillion in cash, but 4.8 trillion in debt for the non banks. Mostly short term. I wouldn't hold my breath waiting for all that cash to go into the economy.

bob2356 says

I wouldn't hold my breath waiting for all that cash to go into the economy.

You apparently missed my point... that was my point. In a deflationary decline cash actually increases in value. If you are in cash when a stock or a house falls 50% you can buy twice as much stock or the house for half the price that you could at the peak.

My point was that few companies today are hoarding cash (although many will try once the collapse begins) thus the buyback of their stock will have been a futile mistake in hindsight. As in 2008, companies will suspend dividends until they are comfortable the worst of the decline is over. M&A activity goes to zero in a deflationary episode.

darlag says

Once the balloon does pop, it will be an explosion on the order of Hiroshima. It's just a matter of time... the question isn't IF but WHEN?

OK - so while in the abstact I agree with you, you have not made a compelling case for why the big KABOOM will be now or 100 years from now. The "Not if but when" is an emotive, scary argument, but you can also use it for the overdue CA "big one" quake, Nuclear missile strikes, the asteroid impact which will wipe out this planet, etc, etc, etc.

I mention this because it seems people mistake something being "inevitable" (which on an unlimited 1000+ year timeline, deflationary collapse will indeed happen), versus something being "imminent". Thus, frankly, if you don't have the "when" then you don't have anything.

In the instant case, you mention "social mood" and point to a site closely linked to Robert Prechter and the so called Elliot Wave. I happen to know of at least one person who fell for Prechter's siren song of "imminent deflation" way back in 1989. He sold his house & got liquid @ DJIA 3,000

http://www.nytimes.com/1989/02/06/business/market-place-2-theorists-split-on-elliott-wave.html

Absent very short periods of bullishness, I have found similar calls of "Economic Armageddon dead ahead" in 1993, 1997, 2003, 2008, 2010, etc. Even back as far as 1989, the deflationists were saying "BUCKLE YOUR SEATBELTS - IMMINENT FINANCIAL COLLAPSE!!!!!!" Yet, it is now 25 years later, and those who sidelined themselves @DJIA 3,000 - 25 years of renting with no end in sight - are pretty much destitute by now.

So again, I must ask, what specifically makes you so convinced that you use this apocryphal language for preparing for the financial apocalypse now versus say 1,2, 10 or even 45 years from now?

Funny, the more buzzwords people learn and the more they become mired in the silly Austrian vs. Keynes competition, the more common sense gets thrown out the window. One has simply to look at a chart of the S&P and imagine the line continuing on its current trajectory to realize that this is not sustainable.

bob2356 says

Ask a Keynsien how the debt can increase forever without ever seeing a day of reckoning and it's like listening to my 5 year old explain how the flower vase got broken.

How could that have possibly been disliked?
No truer words ever spoken. The only difference is, the 5 year old doesn't know they are full of shit.

Homeboy says

Funny, the more buzzwords people learn and the more they become mired in the
silly Austrian vs. Keynes competition, the more common sense gets thrown out the
window. One has simply to look at a chart of the S&P and imagine the line
continuing on its current trajectory to realize that this is not
sustainable.

There's a big difference between not continuing with 20%/year returns and losing 50%+ of its current value.

The first I agree with, the second I don't.

bob2356 says

Ask a Keynsien how the debt can increase forever without ever seeing a day of
reckoning and it's like listening to my 5 year old explain how the flower vase
got broken.

A Keynesian doesn't advocate debt increasing forever, so it's not really a good question.

Also note that the current P/E ratio of 25.6 is already higher than it has been at the peaks of all the previous bubbles since 1880.

dunnross says

Also note that the current P/E ratio of 25.6 is already higher than it has been at the peaks of all the previous bubbles since 1880.

Dunross - last time you were here I asked you to clear up some questions about when you were long vs short on gold but I guess you missed it (see post #64):

/?p=1230953

Since you are here as of 5-10 minutes ago, do you want to address these issues now?

dunnross says

Also note that the current P/E ratio of 25.6 is already higher than it has
been at the peaks of all the previous bubbles since 1880.

You obviously have no clue what a bubble is.

tatupu70 says

There's a big difference between not continuing with 20%/year returns and losing 50%+ of its current value.

I'm pretty sure I never said that.

"Not continuing with 20%/year returns" would mean the chart would have that huge ramp up, then just level off. Look at the chart - has that ever happened before? No, it has never happened before.

I think there will be a correction. I cannot tell you exactly what percentage it will be, but I think it will be significant. We've had 2 huge boom/bust cycles, and both times, so called "analysts" used sophistry to attempt to "prove" that it was "different this time". I have learned to ignore the sophistry.

Homeboy says

I'm pretty sure I never said that.

You didn't. The OP did.

Homeboy says

Not continuing with 20%/year returns" would mean the chart would have that huge
ramp up, then just level off. Look at the chart - has that ever happened before?
No, it has never happened before.

Sure it has. There have been times of low growth and times of negative growth.

tatupu70 says

You obviously have no clue what a bubble is.

And you obviously have no clue what a civilized debate is all about. I give you facts and you give me insults. Nice.

dunnross says

And you obviously have no clue what a civilized debate is all about. I give
you facts and you give me insults. Nice.

Sorry--I'm not used to you being civilized. But your "facts" are incorrect. The current P/E of the S&P 500 is 19.86

http://www.multpl.com/

On the high side, but clearly not a bubble.

CDon says

So again, I must ask, what specifically makes you so convinced that you use this apocryphal language for preparing for the financial apocalypse now versus say 1,2, 10 or even 45 years from now?

More than fair question. I look at so many things I can't list them all. And my opinion is obviously subjective even though I try to objectively look at a host of indicators... kondratieff long waves, IIA surveys, 7 yr and 10 yr business cycles, long term trend lines, leverage ratios, a multitude of sentiment data, and I am an Elliott wave trader of a dozen years or so.

Based on EWT, I see an imminent (days to weeks max) major reversal in the stock market. Will it be "the big one"? Granted, I don't know. Will it be significant? I believe it will at least surpass the 2009 bottoms. I try not to be apocalyptic but it is hard given my beliefs. Too much data says it's going to be really bad. And anecdotally, the world is in a really bad place right now, economically and politically. Individually, none of the above proves anything but viewed in the aggregate is terribly convincing to me.

Oh, and for the record, if anyone wants to check, you can click on those 2nd or 3rd instances where it says "dunnross says" and see for yourself that the quotes are a verbatim recitation of what he said at the time - boldface was mine.

Rather than come clean and admit that one or the other of these statements is a lie, I would not be surprised to see Dunross to go back and edit one or the other of them to make them jive. If you are lucky, you may be able to click on them and see him make some backpedaling edits it in real time.

Then again, perhaps he shall surprise us - we shall see...

darlag says

More than fair question. I look at so many things I can't list them all. And my opinion is obviously subjective even though I try to objectively look at a host of indicators... kondratieff long waves, IIA surveys, 7 yr and 10 yr business cycles, long term trend lines, leverage ratios, a multitude of sentiment data, and I am an Elliott wave trader of a dozen years or so.

I appreciate the civil discourse. It is rare that I meet a EW trader who is so open to the idea that the big one is not necessarily just around the corner.

If you don't mind, I really would like to pick your brain for a moment. For starters, you said you have been an EW trader for a dozen or so years - was there ever a time during that 12 year span where you were bullish for more than a few days or weeks? I ask because of approximately the 30 or so EW traders I have met in the last 15 years, not one of them was long term bullish (I mention this because there is an obvious implication of a "selection bias" issue which may be at work here - you would think that on the balance of probabilities, half of them would have been bearish, half bullish - yet it has been 100% - 0% ).

Second, when you see that Prechter has been (long term), resoundingly, pound-the-table bearish for approximately 25 years now, doesn't that bother you? If he cannot seem to anticipate the beginning of the downward c / apocalypse wave for +or- 25 years, do you personally believe that you can call it any better?

Any response appreciated.

CDon says

If you don't mind, I really would like to pick your brain for a moment.

No problem. I have a commitment right now but I will come back and edit this response as soon as I can, hopefully this evening.

tatupu70 says

dunnross says

And you obviously have no clue what a civilized debate is all about. I give

you facts and you give me insults. Nice.

Sorry--I'm not used to you being civilized. But your "facts" are incorrect. The current P/E of the S&P 500 is 19.86

http://www.multpl.com/

On the high side, but clearly not a bubble.

Nope, your data is from last year. This year, it's 25.6, just like my link says:

http://www.gurufocus.com/shiller-PE.php

And, it's over 50% higher than the historic mean. At the end of the bear market it should be 6, but it never got that low. So, any fool who thinks that the worst is still behind us, clearly thinks that "This time is different". Whether this is a bubble or not is completely irrelevant to the discussion. What is relevant, is that some uncivilized philistines like you, can't even read the subject of the post.

CDon says

So, again, as of July 6, 2012 you said you were "fully invested in gold and silver, right now". Yet, a little over a year later when it was clear that Gold was in a rout, you conveniently change your claim to "I was actually shorting gold back in 2011". So do you now want to tell us which one of these positions is true?

What is it about the difference between 2012 and 2011 which you can't understand?

dunnross says

CDon says

So, again, as of July 6, 2012 you said you were "fully invested in gold and silver, right now". Yet, a little over a year later when it was clear that Gold was in a rout, you conveniently change your claim to "I was actually shorting gold back in 2011". So do you now want to tell us which one of these positions is true?

What is it about the difference between 2012 and 2011 which you can't understand?

So you want to play it this way? Ok, lets start here... On July 6 2012 were you:

(a) short gold?

OR

(b) long gold?

Feel free to answer (a) or (b) at your first opportunity, and then we will go from there.

CDon says

So you want to play it this way? Ok, lets start here... On July 6 2012 were you:

(a) short gold?

OR

(b) long gold?

Feel free to answer (a) or (b) at your first opportunity, and then we will go from there.

Wait a minute? Did I sign up to take this SAT test last week?

dunnross says

CDon says

So you want to play it this way? Ok, lets start here... On July 6 2012 were you:

(a) short gold?

OR

(b) long gold?

Feel free to answer (a) or (b) at your first opportunity, and then we will go from there.

Wait a minute? Did I sign up to take this SAT test last week?

Again, you previously said:

What is it about the difference between 2012 and 2011 which you can't understand?

Accordingly, we will now go through this step by step. Ready?

On July 6 2012 were you:

(a) short gold?

OR

(b) long gold?

Feel free to answer (a) or (b) at your first opportunity, and then we will go from there.

Alternatively, you can just admit which one of your 2011/2012 statements was a lie and short circuit this whole process. Your choice...

tatupu70 says

Homeboy says

Not continuing with 20%/year returns" would mean the chart would have that huge

ramp up, then just level off. Look at the chart - has that ever happened before?

No, it has never happened before.

Sure it has. There have been times of low growth and times of negative growth.

Sure it has what? The question was not "have there ever been times of low growth or negative growth?"; the question was, "has the S&P ever had a huge ramp up and then just leveled off?" Please try reading for a change.

When was the last time the S&P went up 1,000 points in 5 years? It was 1995-2000. Did it level off after that? (Hint: no, it didn't).

RIP, common sense.