Why is this Bear wrong?

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Squeak
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Joined: Thu May 22, 2014 6:59 pm

Why is this Bear wrong?

Post by Squeak » Thu Feb 04, 2016 2:49 pm

(Hopefully this is the right place to put this)

I have been following this blogger for awhile, and he seems to be very smart, but is by all accounts very direct in what he thinks is going to happen with the market.

His latest post (http://market-ticker.org/akcs-www?post=231082) speaks to the notion that a majority of equities growth over the last 30 years is due to an aggressive market in interest rates, that is hitting its end. His predictions are scary, to say the least, to a Bogleheader that wants to stay the course -- but cannot be overlooked.

Yes, traditional models state that overtime the market creates positive returns, but nothing states that you can't run sideways for the next 15-20 years after a major sell-off.

Lots of smart people here, so I would love to hear why he is wrong (or misguided) -- if he really is.

randomguy
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Re: Why is this Bear wrong?

Post by randomguy » Thu Feb 04, 2016 3:03 pm

How did the market do between 1938 and 1960 when we had a long period of sub 4% rates? It is easy to look at one stat and come up with a story. Most bears have predicated 20 of the last 3 crashes correctly.:) The toot their horns about the times they are correct and ignore all the others.

We are 3 to 7 years (depending if you start in mid 2009 or late 2011) into a bull market without a serious correction (20%+). Historically we are due for one. But if it happens tomorrow or in 3 years after the markets rise another 30% is impossible to say. But I can assure that after it happens there will be a dozen people pointing out how obvious it was about to happen.

livesoft
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Re: Why is this Bear wrong?

Post by livesoft » Thu Feb 04, 2016 3:06 pm

I try not to read stuff touted as financial porn, but just wanted to write that you should try not to read that stuff either.
Wiki This signature message sponsored by sscritic: Learn to fish.

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Toons
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Re: Why is this Bear wrong?

Post by Toons » Thu Feb 04, 2016 3:14 pm

More noise.
For close to 40 years now I have countless "pundits","crystal ball forecasters",predict doom and gloom.
There was even the "Death of Equities years ago",when the Dow was around 700.
The more doom and gloom and downward trend,,the better.Depressed prices.
Having said that I gotta go...time to invest :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

lack_ey
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Re: Why is this Bear wrong?

Post by lack_ey » Thu Feb 04, 2016 3:16 pm

Between 1938 and 1960 there were relatively low rates but not declining rates, and corporate debt didn't look quite the same.

Declining rates and also the expansion of credit are uncontroversially a factor in real stock returns since the 1980s. But the returns over this period were staggering (11.2% nominal, 7.8% real) should be nobody's realistic assumptions.

There are different views on what the effects and implications of current interest rates and central bank policy are.

US companies are overall by many measures less leveraged than before the crisis. We may be just in for some okay growth, nothing great but I don't think you could predict flat or negative returns as the base case.

Internationally, there are some concerns, but valuations are lower in most of the rest of the world, so it seems fair enough.

Valdeselad
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Re: Why is this Bear wrong?

Post by Valdeselad » Thu Feb 04, 2016 3:19 pm

Market forecasters will fill your ear but will never fill your wallet.
Warren Buffett
2014 Annual Shareholder Letter

Dulocracy
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Location: Atlanta, GA

Re: Why is this Bear wrong?

Post by Dulocracy » Thu Feb 04, 2016 3:25 pm

Are you going to pile your money into gold bullion and stack it in the corner?

Keep investing. Look at your asset allocation. Reduce the stock portion by 1/3. Are you ok? Is your heart fluttering? Decide what you can stomach in the way of loss based on your emotions and when you will need the money. If the market stays down 10 years and then recovers, are you still ok? If not, adjust your asset allocation.

Do not let articles like this make you panic, however. You will wind up with an asset allocation way too low for what your normal risk tolerance would be, and you will hurt your own returns.
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.

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saltycaper
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Re: Why is this Bear wrong?

Post by saltycaper » Thu Feb 04, 2016 3:33 pm

Squeak wrote:Yes, traditional models state that overtime the market creates positive returns, but nothing states that you can't run sideways for the next 15-20 years after a major sell-off.
Regardless of the validity of the blogger's claims, this statement is correct. It was true 50 years ago, it is true today, and it will be true 50 years from now.

I am still staying the course. Alternatives don't look any better.
Quod vitae sectabor iter?

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JoMoney
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Re: Why is this Bear wrong?

Post by JoMoney » Thu Feb 04, 2016 3:34 pm

Nobody knows what the future will bring. I can't say he's definitely wrong any more than I could say he's right, but we have to get on with our lives either way, and it's generally been advantageous to take a more hopeful view of the future.
It takes a certain kind of optimism and a belief that the sun will come out tomorrow. It's easier not to worry about the sun though because you're not constantly bombarded with 24hr news and blogs filled with financial porn pointing out every possible impediment in sight... Rain can pour down for days, floods may wash away everything we planted the days before, but eventually it will stop. Those who keep on working at it despite clouds in the sky will see progress, maybe even benefits from the rain, and those sitting around staring at the sky believing they'll wait until after the next big rain passes never seem to get anywhere.
"In times like these, it's helpful to remember that there have always been times like these."

From 1941 to 1982 interest rates went from 1.95% to 14.59% http://www.multpl.com/10-year-treasury- ... le/by-year
There was definitely trials and tribulations across that period, but there was progress to.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Calais
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Re: Why is this Bear wrong?

Post by Calais » Thu Feb 04, 2016 3:39 pm

One reason to doubt his credibility is the inaccuracy of his past predictions:
http://www.amazon.com/gp/customer-revie ... 1118122844

I also don't find the argument of decline in interest rates to be convincing either. While interest rates have gone down, so has inflation. He seems to be picking and choosing his numbers without presenting both sides of the argument.
Image

Furthermore, while there has been an increase in debt, the federal debt / GDP still has only gone up 1.25x and personal debt service levels have been hovering around 10% (with a peak of 13% of household income in '08). So it doesn't sound as bad as he makes it out, unless you believe that even if the debt service levels are fine, this household debt should really be classified as non-performing since the principal is too much to pay back.
Image

Though his reasoning seems wrong, I do agree with his conclusion to some extent: equity markets will likely decline in value, though I don't like his breathless fear-mongering. Why a decline in equity prices -- in the US at least -- though worldwide markets seems correlated in their panics nowadays?
1) we have a higher than average PE10 ratio (seems to predict at least 40% of future returns) and, quite subjectively, I might add 2) the 'mood' of the public and the market seems to be becoming more fearful as evidenced by the sharing and writing of articles like this.

cottonseed1
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Re: Why is this Bear wrong?

Post by cottonseed1 » Thu Feb 04, 2016 3:56 pm

JoMoney wrote: From 1941 to 1982 interest rates went from 1.95% to 14.59% http://www.multpl.com/10-year-treasury- ... le/by-year
There was definitely trials and tribulations across that period, but there was progress to.
Trials:

Off the top of my head....WWII, Korean War, Cuban Missile Crisis, Vietnam, Vietnam War protest, civil rights movement, Kennedy Assassination, 1970s energy crisis, Watergate/Nixon resignation, Niffty 50 bubble and subsequent bust into the 73-74 market crash, Cold War.

Progress:

From 1941-1982 the US stock market compounded at a rate of 11.27% annualized with a 6.26% real return.

snarlyjack
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Location: Montana

Re: Why is this Bear wrong?

Post by snarlyjack » Thu Feb 04, 2016 5:30 pm

When I put together my investment portfolio I studied
"How this janitor amassed $8 million in the stock market...Ronald Read".

He fought in WW11...He invested through the Korean War, Cuban Missile Crisis,
Vietnam, Civil Rights, Kennedy Assassination, 1970 Energy Crisis, Watergate,
Cold War, Numerous stock market collapses, plus a lot of other things...

Guess what...he was a buyer of stocks...not a seller of stocks!

He made $8 million dollars investing in stocks. He didn't have a college
degree and had a low paying job. He was very frugal & invested his money
for the long haul in stocks. He was a "Boglehead".

I totality agree with Cottonseed1...he is right on!
Read about Ronald Read...

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blueblock
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Re: Why is this Bear wrong?

Post by blueblock » Thu Feb 04, 2016 7:06 pm

I see in your linked article that Mr. Denninger manages to squeeze in one of his favorite words: ‘collapse,’ something he’s been predicting for a long, long time.

This is a perfect example of financial porn. Mr. Denninger, who by the way has no special training in economics or finance, has been predicting doom and gloom scenarios for years.

In 2010, he predicted lower market prices, unemployment over 10% and a double-dip recession, none of which occurred. In 2012, he wrote, “We’re going down—and this time it’s not ‘buy the dip.’” In 2013, he advised, “You’re going to see a massive shift in the employment picture, all negative.” In 2014, he predicted a tech market bubble-burst. None of that happened.

The thing is, there’s an audience for this kind of writing, and they don’t especially care that he’s wrong, as long as he’s feeding their prejudice that the barbarians are at the gate. They believe that thieves run Wall Street, liars run the government, and it’s only a matter of time until… complete and utter collapse.

And this is why you should avoid financial porn.

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