OT: China stocks dive 7% Early
- Thread starter scarletred
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In a past life, I had a Series 7 security license (many years ago). I saw clients lose tens of thousands of dollars by bailing out of bond funds at exactly the wrong time. Usually it was influenced by unscrupulous brokers trying to capture their assets. Right now, bond funds haven't taken the hit yet that they will in the face of rising interest rates. I don't think most investors really believe that rates are going to rise appreciably yet. We'll see.
Why exactly are you predicting an increase in interest rates when the majority of the globe is in a deflationary cycle?
I'm not predicting it, the fed has already announced a rate increase and expectations from some of the people I've read predict more rate increases in the near future. There has been some increase in wages and our current fed chair is scared to death of inflation.
The fed only impacts short term rates.... And Janet Yellen is frequently called "queen of the doves"
Scared to death of inflation? The U.S. has been trying its damnedest to create some inflation for a couple of years now, but can't.
Interest rates will creep up, because they have no other direction to go. But sharp increases are very unlikely.
This cartoon sums it up nicely:
Sharp increases are a risk once it starts as bond longs begin to bail. That money will go into equities.
And by the way the Fed can easily control long term interest rates if it decides to. They can buy or sell bonds.
Feds created too much liquidity in this market with 0% money. People could borrow money cheaply and invest - the risk was minimal. That leads to too many people chasing the same stocks that artificially pushes them higher.
Think about why Feds did not raise rates sooner. It is because the economy was not doing good enough to support it. Now if there is a problem they have nowhere to go.
Oil under 35 because of worldwide slow down in demand. No one needs it.
Think about why Feds did not raise rates sooner. It is because the economy was not doing good enough to support it. Now if there is a problem they have nowhere to go.
Oil under 35 because of worldwide slow down in demand. No one needs it.
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In Russia they have the exact opposite government policy towards farming dating back to the communist takeover. The farmers take all the downside risk of low prices and receive none of the upside due to price controls. No one had an incentive to work hard on a farm if they didn't own it. Now, when food prices rise they implement price controls. The USA is totally different, we subsidize our farmers where they have very little downside and receive all the upside via govt subsidized crop insurance ect.. This is why wall street is now a major owner of farmland. Russia has massive amounts of untapped farmland.
An ex-Fed governor was on CNBC this week, and he basically said that the Fed caused the frontloading of a market rally in 2009. The somewhat scandalous part is that they did this on purpose with full intent in order to create a wealth effect. And he also admits that the Fed has no ammunition left.
Unfortunately, nearly all of the wealth effect benefited the already wealthy.
We need rates to rise, for numerous reasons. Bonds funds will drop, but nothing like stocks in a bear market, and will recover within their duration. The bigger complication with rising rates is that it will wipe out the speculative gains in the market due to the Fed-sponsored frontloaded rally. And it will expose other bubbles that were blown by easy money.
Unfortunately, nearly all of the wealth effect benefited the already wealthy.
We need rates to rise, for numerous reasons. Bonds funds will drop, but nothing like stocks in a bear market, and will recover within their duration. The bigger complication with rising rates is that it will wipe out the speculative gains in the market due to the Fed-sponsored frontloaded rally. And it will expose other bubbles that were blown by easy money.
This is what frustrates me and yes this can get a little political. There is all of the talk about helping the middle class and all the rich people are screwing the little guy and we need to tax them more and blah blah blah. Turns out the entire set up started in 2009 was completely designed to increase the ability of the wealthy to increase their wealth. I can say I have no problems with people who have wealth and have earned it. But when the government makes winners and losers then I have a problem. They created a money supply by printing more money and making it cheap. This allowed big money people easy access to cheap money and they know what to do with that. The problem is in this case it was personal wealth and not corporate so it did not find its way to the average person. I hear the cries that the middle class is getting hammered, the truth is the middle class has to go away in some eyes, then we only have two classes to work with. One is easy, give them everything and you take everything from the other - its the ones in the middle that cause the problems.
I look at it this way:
It is human nature to try to acquire and build wealth. We know from studying the subject that even very rich people do not feel they are rich enough. They feel like they're not "safe" yet and feel compelled to build more wealth.
And that's fine. It doesn't have to be right or wrong, let's just accept that we've studied and learned this.
So they figured out that money also buy a lot of influence, and you can use influence to "adapt" the rules so that you can make more money. So they did. Hence what has been done with tax rates and capital gains, estate taxes, etc.
When the fed ran all their QE programs, of course it was going to build wealth for the wealthy. The stock market pretty much IS the wealthy. Go through the clubhouse at the golf course and you can have a conversation about which stocks everyone owns. Go through the kitchen at Applebees and I'm gonna bet you most of those cats don't have a portfolio.
It was pretty much a trickle-down exercise they could do somewhat quietly without the average person realizing that the end effect was that it was a stimulus for rich people who didn't need any stimulus.
I happen to think you run an economy like ours better if you can get that median income higher rather than the average, but you've seen what a shitstorm gets brewed up if you talk about raising wages. Never mind that the peak minimum wage happened in 1968 in nominal terms, people really start feeling some feelings if you bring all that up, and the fed can't just do that. So they did what they could and bought a bunch of bonds.
But regardless of what they do, guess what? Rich people are often rich because they're smart, and smart people with a lot of resources turn out to be better at figuring out how to grow their wealth than poor people with no money. You also make a lot more if you gain 8% on a million bucks than you do if all you could spare to invest was a hundred.
What doesn't often get discussed is that time the GW administration cut us all a stimulus check. What was that, around '07? I don't really have a point to go with that, I just think it's interesting that people don't seem to really remember/talk about that.
In many ways, you are better off right now to have nothing. Government / business cannot take what you don't have. The middle class is like the kid that gets robbed every day at school.
For many businesses, it is essential to have a healthy middle class with disposable income. At some point, if you erode that class far enough, there is no one left to buy all the discretionary goods & services businesses are selling. People go back to only spending on Maslow's hierarchy of needs type of basics.. food, clothing, shelter, etc.
For many US businesses, they have become very short sighted. They don't care about profits tomorrow, only the profits they can make today. This is how things erode quickly. It's actually quite amazing to see how fragile many businesses are. With things like just in time inventory, distribution, & financing, many businesses are really only 1-3 months from bankruptcy. Everything is highly leveraged and on strict timelines from one business to the next along the supply chain. Few businesses have capital assets or even tangible ones to weather any kind of disruption in the business cycle.
Businesses don't have it so good either. Globalization makes it even harder for businesses to succeed. The lack of trade secret or intellectual property protection means business have to try to compete on an unequal footing, where competitors can just rip off your designs, your R&D, and even your business model, within a week of you releasing your new product. Laws are different in every country, and getting something enforced can cost more than the benefit allows.
I guess to sum this up before I get too far off the path, there are difficulties for both consumers and businesses. The rules have changed with globalization and the internet, and these are difficult things to try to figure out. Not to get political here, but having someone in office who understands business has the potential to really help us and this country. The smart guys know that you have to maintain a balance on both sides, consumers & businesses. They sort of rely on one another.
For many businesses, it is essential to have a healthy middle class with disposable income. At some point, if you erode that class far enough, there is no one left to buy all the discretionary goods & services businesses are selling. People go back to only spending on Maslow's hierarchy of needs type of basics.. food, clothing, shelter, etc.
For many US businesses, they have become very short sighted. They don't care about profits tomorrow, only the profits they can make today. This is how things erode quickly. It's actually quite amazing to see how fragile many businesses are. With things like just in time inventory, distribution, & financing, many businesses are really only 1-3 months from bankruptcy. Everything is highly leveraged and on strict timelines from one business to the next along the supply chain. Few businesses have capital assets or even tangible ones to weather any kind of disruption in the business cycle.
Businesses don't have it so good either. Globalization makes it even harder for businesses to succeed. The lack of trade secret or intellectual property protection means business have to try to compete on an unequal footing, where competitors can just rip off your designs, your R&D, and even your business model, within a week of you releasing your new product. Laws are different in every country, and getting something enforced can cost more than the benefit allows.
I guess to sum this up before I get too far off the path, there are difficulties for both consumers and businesses. The rules have changed with globalization and the internet, and these are difficult things to try to figure out. Not to get political here, but having someone in office who understands business has the potential to really help us and this country. The smart guys know that you have to maintain a balance on both sides, consumers & businesses. They sort of rely on one another.
