QE, massive crash, Dow 3000?

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Carousel
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QE, massive crash, Dow 3000?

Post by Carousel »

Hi, everyone.

I am new to investing and I would like to get your thoughts on this.
I read a short post suggesting that QE set up an artificial floor to the stock market at Dow 6000. The author suggests that a crash could send the market below that level, for ex to Dow 3000 (=87% decline from current level).

The short post is here:
https://steemit.com/money/@marketreport ... -mannarino

I got curious and started reading articles on QE. Most of what I read said that QE was helpful and the unwinding appears to be proceeding in good order. However, Investopedia said this: "Some believe the low-interest rate policy of the Federal Reserve after the dotcom crash in the late 1990s helped to inflate the early 21st-century housing bubble in exactly this manner. It is theoretically possible stock market prices could crash like those housing prices in 2008-09 if the same phenomenon results from QE" (from Sept 2018).

The federal reserve website shows that 400 bn of the 4.5 trn has moved off the balance sheet through the normalization process. There's a lot left to go, even if the "new normal" involves (as I've seen suggested) 2x the asset level of 2007.

Will the next crash take us back to 2007 levels? I would like to hear your thoughts on this.

(Please note I searched the forum for a similar thread and didn't find one. If I missed it, just point me there.)

Thank you! I hope everyone is having a wonderful holiday season.
Carousel
DeadPoets
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Re: QE, massive crash, Dow 3000?

Post by DeadPoets »

QE is never a good thing, but many will convince you otherwise.
AlohaJoe
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Re: QE, massive crash, Dow 3000?

Post by AlohaJoe »

Do you normally find random people on the Internet and then just believe everything they write?

Here's what you do: take the author's name and Google it. See what they wrote in 2016 or 2015 or 2010. Does it seem like they consistently make good predictions? Or does it seem like they have a track record of being both crazy and wrong?

However you found this author, you need to change your reading habits because you are reading quite literal garbage.

Here's what Gregory Mannarino had to say in....

2013..."An October STOCK-DROP is ahead"
2014..."The stock market is poised to fall"
2014...."The US Stock Market Is a Dead Man Walking"
2015..."Gold and silver are the best trades on earth"
2017..."You must own hard assets now"

And my favorite from early 2015:
“We are staring down the barrel of the worst financial cataclysm that has ever been seen, witnessed or even heard of in human history.”

“There is no way out of this. As hard as I think about this, I cannot envision a scenario that there is no way this will not turn into a financial disaster of epic proportions for every human being on this earth.”
3.5 years later and we still haven't seen a whisper of it. He hasn't been right about a single prediction in his entire career. I'm not sure why you think he has anything of value to say now.
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Re: QE, massive crash, Dow 3000?

Post by abuss368 »

Carousel wrote: Wed Dec 26, 2018 9:08 pm Hi, everyone.

I am new to investing and I would like to get your thoughts on this.
I read a short post suggesting that QE set up an artificial floor to the stock market at Dow 6000. The author suggests that a crash could send the market below that level, for ex to Dow 3000 (=87% decline from current level).

The short post is here:
https://steemit.com/money/@marketreport ... -mannarino

I got curious and started reading articles on QE. Most of what I read said that QE was helpful and the unwinding appears to be proceeding in good order. However, Investopedia said this: "Some believe the low-interest rate policy of the Federal Reserve after the dotcom crash in the late 1990s helped to inflate the early 21st-century housing bubble in exactly this manner. It is theoretically possible stock market prices could crash like those housing prices in 2008-09 if the same phenomenon results from QE" (from Sept 2018).

The federal reserve website shows that 400 bn of the 4.5 trn has moved off the balance sheet through the normalization process. There's a lot left to go, even if the "new normal" involves (as I've seen suggested) 2x the asset level of 2007.

Will the next crash take us back to 2007 levels? I would like to hear your thoughts on this.

(Please note I searched the forum for a similar thread and didn't find one. If I missed it, just point me there.)

Thank you! I hope everyone is having a wonderful holiday season.
Carousel
Hi Carousel -

Investors can not make investment decisions based on such articles. Bogleheads know better and develop an investment plan based on goals, timeframe, and tolerance for risk.

Investors would be best served to tune out the noise.
John C. Bogle: “Simplicity is the master key to financial success."
OkieIndexer
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Re: QE, massive crash, Dow 3000?

Post by OkieIndexer »

Gregory Manarino, haha! In his YouTube videos I think he's sitting there in his Mom's basement in his shirt and tie...and underwear. :mrgreen:
"In bull markets, people say 'The more risk I take, the greater my return.' But when people aren't afraid of risk, they'll accept risk without being compensated." -Howard Marks, Oaktree Capital
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Re: QE, massive crash, Dow 3000?

Post by livesoft »

AlohaJoe wrote: Wed Dec 26, 2018 9:18 pm 3.5 years later and we still haven't seen a whisper of it. He hasn't been right about a single prediction in his entire career. I'm not sure why you think he has anything of value to say now.
Thanks for doing all that research and wasting your time. I appreciate it. :)
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arcticpineapplecorp.
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Re: QE, massive crash, Dow 3000?

Post by arcticpineapplecorp. »

livesoft wrote: Wed Dec 26, 2018 9:31 pm
AlohaJoe wrote: Wed Dec 26, 2018 9:18 pm 3.5 years later and we still haven't seen a whisper of it. He hasn't been right about a single prediction in his entire career. I'm not sure why you think he has anything of value to say now.
Thanks for doing all that research and wasting your time. I appreciate it. :)
I thought AlohaJoe's was a great post. I don't see how it's a waste of time if it helps carousel understand the importance of doing what we call due dilligence. If you're saying AlohaJoe did the work for carousel, ok. But are we not supposed to direct people towards the truth? Carousel obviously took a limited sample (one article) and went running with it. Now s/he will know to do a bit of searching before just blindly accepting one article/one person's word on a subject.

AlohaJoe thanks for posting and doing the research that hopefully Carousel will now know to do for him/herself.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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Re: QE, massive crash, Dow 3000?

Post by TheHouse7 »

livesoft wrote: Wed Dec 26, 2018 9:31 pm
AlohaJoe wrote: Wed Dec 26, 2018 9:18 pm 3.5 years later and we still haven't seen a whisper of it. He hasn't been right about a single prediction in his entire career. I'm not sure why you think he has anything of value to say now.
Thanks for doing all that research and wasting your time. I appreciate it. :)
+1
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.
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Carousel
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Re: QE, massive crash, Dow 3000?

Post by Carousel »

arcticpineapplecorp. wrote: Wed Dec 26, 2018 9:48 pm
Carousel obviously took a limited sample (one article) and went running with it. Now s/he will know to do a bit of searching before just blindly accepting one article/one person's word on a subject.

AlohaJoe thanks for posting and doing the research that hopefully Carousel will now know to do for him/herself.
Did I blindly accept someone's word? Is Investopedia not a reasonable source?

I think I laid out my thought process pretty clearly in my post. Here's a blog post I found, I read some other articles, I noted that people in general seem not to be worried about this, but the Investopedia article suggested it _could_ be a concern, and I came here to ask more experienced investors what they thought.

It seems reasonable to me. (I agree that it would be easier for me to check an analyst's record if I had more years studying the stock market behind me.)
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HomerJ
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Re: QE, massive crash, Dow 3000?

Post by HomerJ »

Carousel wrote: Wed Dec 26, 2018 10:22 pm
arcticpineapplecorp. wrote: Wed Dec 26, 2018 9:48 pm
Carousel obviously took a limited sample (one article) and went running with it. Now s/he will know to do a bit of searching before just blindly accepting one article/one person's word on a subject.

AlohaJoe thanks for posting and doing the research that hopefully Carousel will now know to do for him/herself.
Did I blindly accept someone's word? Is Investopedia not a reasonable source?

I think I laid out my thought process pretty clearly in my post. Here's a blog post I found, I read some other articles, I noted that people in general seem not to be worried about this, but the Investopedia article suggested it _could_ be a concern, and I came here to ask more experienced investors what they thought.

It seems reasonable to me. (I agree that it would be easier for me to check an analyst's record if I had more years studying the stock market behind me.)
Most of us have made the mistake you made. Most of us here have read an article or clicked on a wild headline with an exaggerated overblown (but convincing) argument about financial doom. You're not alone. I've done it too.

Don't get defensive. Learn from it, and say "Thanks, AlohaJoe!"

The wilder the headline, the more extreme the prediction, the less likely it's true.

You will always be able to find a ton of people on the Internet who are predicting doom. You may read one guy, do some searches, and find 10 more that agree with him. But that's because wild claims get more clicks.

Best to do what AlohaJoe did. See how their previous predictions did. And don't take their word for it after the fact.

"I predicted the 2008 crash! <link to article>"

But the author won't link the 2003 and the 2005 and the 2010 and the 2012, and the 2014 articles where he predicted the exact same thing, and they didn't come true. You'll have to find them yourself.

Or just ignore all that noise, and read some of the books suggested here...

https://www.bogleheads.org/wiki/Books:_ ... t-up_Books
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
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Re: QE, massive crash, Dow 3000?

Post by mister_sparkle »

AlohaJoe wrote: Wed Dec 26, 2018 9:18 pm Do you normally find random people on the Internet and then just believe everything they write?

Here's what you do: take the author's name and Google it. See what they wrote in 2016 or 2015 or 2010. Does it seem like they consistently make good predictions? Or does it seem like they have a track record of being both crazy and wrong?

However you found this author, you need to change your reading habits because you are reading quite literal garbage.

Here's what Gregory Mannarino had to say in....

2013..."An October STOCK-DROP is ahead"
2014..."The stock market is poised to fall"
2014...."The US Stock Market Is a Dead Man Walking"
2015..."Gold and silver are the best trades on earth"
2017..."You must own hard assets now"

And my favorite from early 2015:
“We are staring down the barrel of the worst financial cataclysm that has ever been seen, witnessed or even heard of in human history.”

“There is no way out of this. As hard as I think about this, I cannot envision a scenario that there is no way this will not turn into a financial disaster of epic proportions for every human being on this earth.”
3.5 years later and we still haven't seen a whisper of it. He hasn't been right about a single prediction in his entire career. I'm not sure why you think he has anything of value to say now.
Thank you.
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Re: QE, massive crash, Dow 3000?

Post by Island John »

The concerns that you express about the Federal Reserve, QE, and how the level of the stock market might be affected are shared by a lot of people. Investors that subscribe to the Boglehead philosophy ignore all that noise.

Bogleheads believe that trying to forecast the market is a loser’s game. They ignore all the short term “news” and the day to day swings in the market. They pick an asset allocation that matches their risk tolerance and their financial goals. Importantly, they rebalance their portfolio periodically to maintain their target asset allocation. By doing that rebalancing, they are taking profits from assets when they become overvalued (relative to the other assets in the portfolio) and they are purchasing assets when they are relatively undervalued.

Further, using diversified mutual funds or ETFs with low expense ratios to implement this approach provides a return that, over time, matches or exceeds most other investment approaches. And it does it in a way that is simple and requires very little management.

If you know all this already, I apologize for being redundant and stating the obvious. My point is that most of the people on this site just ignore what the Fed is doing or might do. If you are new to investing it may be stressful to see the stock market going down as it has done recently. But over time, you will find that these short-term downturns are just opportunities to rebalance.
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Re: QE, massive crash, Dow 3000?

Post by Toons »

3000?
One can only hope they can have that kind of buying opportunity offered to them by,,
Mr Market.
:mrgreen:
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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Re: QE, massive crash, Dow 3000?

Post by AlohaJoe »

Carousel wrote: Wed Dec 26, 2018 10:22 pm Is Investopedia not a reasonable source?
FWIW, I generally find Investopedia to be quite often be of pretty low quality. Take the quote you had above as an example, "It is theoretically possible stock market prices could crash like those housing prices in 2008-09". It sounds like they are saying something but there's no actual information content in that. Virtually everything is theoretically possible. It is theoretically possible for the US stock market to go to $0 because of a Communist revolution, after all. It is theoretically possible for an asteroid to kill us all tomorrow. Instead of what is theoretically possible, we need to talk about actual probabilities and realistic consequences.

Likewise, they often write in vague generalities with weasel-word phrases like "some believe" (who? how many? what else do those people believe? are they credible?) or "it helped to inflate" (how much did it help? what's the evidence for it? where are the links to academic studies on the issue?). Wikipedia is hardly fault-free but they at least make an effort provide references for claims like that.

I'm not faulting you for looking at Investopedia, since it is usually a top Google result for many investing related questions. And I often read the articles myself when first learning about a new subject -- but I've had enough disappointments in the past with Investopedia that now I see Investopedia more as "here are some keywords & phrases you can use to Google more information about this subject from better sources".
(I agree that it would be easier for me to check an analyst's record if I had more years studying the stock market behind me.)
Here's where I disagree: you don't need years of studying the stock market because the issue here really isn't about the stock market. It is more about modern fringe media where you have lots of producers of content who need to continually out do one another to get clicks (and therefore money). It is more about how to survive & stay sane in the post-apocalyptic information wasteland we all find ourselves in :(
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Carousel
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Re: QE, massive crash, Dow 3000?

Post by Carousel »

Island John wrote: Wed Dec 26, 2018 10:51 pm The concerns that you express about the Federal Reserve, QE, and how the level of the stock market might be affected are shared by a lot of people. Investors that subscribe to the Boglehead philosophy ignore all that noise.
Thanks, IslandJohn. I appreciate this!
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Carousel
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Re: QE, massive crash, Dow 3000?

Post by Carousel »

AlohaJoe wrote: Wed Dec 26, 2018 10:59 pm
Carousel wrote: Wed Dec 26, 2018 10:22 pm Is Investopedia not a reasonable source?
FWIW, I generally find Investopedia to be quite often be of pretty low quality. Take the quote you had above as an example, "It is theoretically possible stock market prices could crash like those housing prices in 2008-09". It sounds like they are saying something but there's no actual information content in that. Virtually everything is theoretically possible. It is theoretically possible for the US stock market to go to $0 because of a Communist revolution, after all. It is theoretically possible for an asteroid to kill us all tomorrow. Instead of what is theoretically possible, we need to talk about actual probabilities and realistic consequences.

Likewise, they often write in vague generalities with weasel-word phrases like "some believe" (who? how many? what else do those people believe? are they credible?) or "it helped to inflate" (how much did it help? what's the evidence for it? where are the links to academic studies on the issue?). Wikipedia is hardly fault-free but they at least make an effort provide references for claims like that.

I'm not faulting you for looking at Investopedia, since it is usually a top Google result for many investing related questions. And I often read the articles myself when first learning about a new subject -- but I've had enough disappointments in the past with Investopedia that now I see Investopedia more as "here are some keywords & phrases you can use to Google more information about this subject from better sources".
(I agree that it would be easier for me to check an analyst's record if I had more years studying the stock market behind me.)
Here's where I disagree: you don't need years of studying the stock market because the issue here really isn't about the stock market. It is more about modern fringe media where you have lots of producers of content who need to continually out do one another to get clicks (and therefore money). It is more about how to survive & stay sane in the post-apocalyptic information wasteland we all find ourselves in :(
Hi, AlohaJoe. Thanks for your thoughts on Investopedia. I also came across a couple of sober-sided articles that said basically, We are in uncharted waters here--we really don't know what the unwinding of this policy will look like.

As far as the post-apocalyptic info world goes ... my mother was born in 1931. She reads H. Dent the way other people read Stephen King! :)

My computer keeps slipping off the internet so I better post this now! Take care.
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Re: QE, massive crash, Dow 3000?

Post by srt7 »

AlohaJoe wrote: Wed Dec 26, 2018 9:18 pm Do you normally find random people on the Internet and then just believe everything they write?

Here's what you do: take the author's name and Google it. See what they wrote in 2016 or 2015 or 2010. Does it seem like they consistently make good predictions? Or does it seem like they have a track record of being both crazy and wrong?

However you found this author, you need to change your reading habits because you are reading quite literal garbage.

Here's what Gregory Mannarino had to say in....

2013..."An October STOCK-DROP is ahead"
2014..."The stock market is poised to fall"
2014...."The US Stock Market Is a Dead Man Walking"
2015..."Gold and silver are the best trades on earth"
2017..."You must own hard assets now"

And my favorite from early 2015:
“We are staring down the barrel of the worst financial cataclysm that has ever been seen, witnessed or even heard of in human history.”

“There is no way out of this. As hard as I think about this, I cannot envision a scenario that there is no way this will not turn into a financial disaster of epic proportions for every human being on this earth.”
3.5 years later and we still haven't seen a whisper of it. He hasn't been right about a single prediction in his entire career. I'm not sure why you think he has anything of value to say now.
Excellent research, analysis and thought process. Thank you.
srt7
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Re: QE, massive crash, Dow 3000?

Post by srt7 »

Toons wrote: Wed Dec 26, 2018 10:58 pm 3000?
One can only hope they can have that kind of buying opportunity offered to them by,,
Mr Market.
:mrgreen:
:mrgreen: Agreed.
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Re: QE, massive crash, Dow 3000?

Post by Dottie57 »

arcticpineapplecorp. wrote: Wed Dec 26, 2018 9:48 pm
livesoft wrote: Wed Dec 26, 2018 9:31 pm
AlohaJoe wrote: Wed Dec 26, 2018 9:18 pm 3.5 years later and we still haven't seen a whisper of it. He hasn't been right about a single prediction in his entire career. I'm not sure why you think he has anything of value to say now.
Thanks for doing all that research and wasting your time. I appreciate it. :)
I thought AlohaJoe's was a great post. I don't see how it's a waste of time if it helps carousel understand the importance of doing what we call due dilligence. If you're saying AlohaJoe did the work for carousel, ok. But are we not supposed to direct people towards the truth? Carousel obviously took a limited sample (one article) and went running with it. Now s/he will know to do a bit of searching before just blindly accepting one article/one person's word on a subject.

AlohaJoe thanks for posting and doing the research that hopefully Carousel will now know to do for him/herself.
+1
boglerdude
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Re: QE, massive crash, Dow 3000?

Post by boglerdude »

> QE is never a good thing, but many will convince you otherwise.

True but it could be neutral. Fed bought mortgages thought to be toxic, they turned out not so bad and the Fed made profit and gave it to the treasury. In the meantime they paid IOER to the banks so the banks held onto the cash.
phantom0308
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Re: QE, massive crash, Dow 3000?

Post by phantom0308 »

DeadPoets wrote: Wed Dec 26, 2018 9:12 pm QE is never a good thing, but many will convince you otherwise.
Disagree, the evidence has been reviewed by economists and the overwhelming consensus is that QE reduced financial stress and increased growth.
https://piie.com/system/files/documents/pb16-4.pdf
hilink73
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Re: QE, massive crash, Dow 3000?

Post by hilink73 »

OkieIndexer wrote: Wed Dec 26, 2018 9:25 pm Gregory Manarino, haha! In his YouTube videos I think he's sitting there in his Mom's basement in his shirt and tie...and underwear. :mrgreen:
The selfproclaimed "Robin Hood of Wall Street". Bwahaha. (Now he got one view more on his #. :oops: )

Edited to add:
Reading the comments on one of those videos ... makes me sad. -> https://www.youtube.com/watch?v=BNsrK6P9QvI
Last edited by hilink73 on Thu Dec 27, 2018 2:47 am, edited 1 time in total.
Valuethinker
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Re: QE, massive crash, Dow 3000?

Post by Valuethinker »

boglerdude wrote: Thu Dec 27, 2018 12:40 am > QE is never a good thing, but many will convince you otherwise.

True but it could be neutral. Fed bought mortgages thought to be toxic, they turned out not so bad and the Fed made profit and gave it to the treasury. In the meantime they paid IOER to the banks so the banks held onto the cash.
I think that is confusing the bailout with QE?

Yes the New York Fed made a profit on Maiden Lane vehicles which bought CDOs from AIG. That was bailout money and I believe that TARP as a whole was profitable.

QE is different. The Federal Reserve bought US Treasury bonds, US agency bonds and corporate bonds (I believe but only high quality) . The purpose was to lower long term interest rates and they appeared to succeed.

The evidence from QE in the Eurozone us that it significantly even decisively lowered interest rates.
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Re: QE, massive crash, Dow 3000?

Post by JBTX »

QE is widely misunderstood. Many think of it as buying and selling bonds with the cash flowing directly into and out of the economy. But I've read a couple of articles that by some balance sheet math it can be shown that the money spent on bonds ends up going into bank reserves with the fed. It doesn't get lent out per se, and doesn't flow into the economy. It's impact is more subtle, by buying bonds they are increasing bond prices and decreasing long term yields. This is why QE didn't have a dramatic effect on the economy, and why a slow unwinding shouldn't be catastrophic.

https://www.google.com/amp/s/www.cnbc.c ... /100760150
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arcticpineapplecorp.
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Re: QE, massive crash, Dow 3000?

Post by arcticpineapplecorp. »

Carousel wrote: Wed Dec 26, 2018 10:22 pm
arcticpineapplecorp. wrote: Wed Dec 26, 2018 9:48 pm
Carousel obviously took a limited sample (one article) and went running with it. Now s/he will know to do a bit of searching before just blindly accepting one article/one person's word on a subject.

AlohaJoe thanks for posting and doing the research that hopefully Carousel will now know to do for him/herself.
Did I blindly accept someone's word? Is Investopedia not a reasonable source?

I think I laid out my thought process pretty clearly in my post. Here's a blog post I found, I read some other articles, I noted that people in general seem not to be worried about this, but the Investopedia article suggested it _could_ be a concern, and I came here to ask more experienced investors what they thought.

It seems reasonable to me. (I agree that it would be easier for me to check an analyst's record if I had more years studying the stock market behind me.)
Sorry, I didn't mean to offend. It's just that so often people read one article, usually designed to frighten, and put more credit on it than it deserves. There's an old mantra, "Nobody knows nuthin" which pretty much sums up things. Every day you'll read things that will keep you guessing, or second guessing previous decisions you've made (or not made). Often people don't even ask, "What's this guy getting out of this by saying this and that?" and therein lies the answer. Sometimes, organizations just want clicks and eyeballs to generate ad revenue. Often people are selling some system of investing or newsletters promising you this or that. You'll always here things. Even asking what people think about this or that on bogleheads can send you down a rabbit hole with people disagreeing about this or that. You can talk macro or micro until you are blue in the face and you'll never get anywhere doing that.

What is known is the basics about investing (from https://www.bogleheads.org/wiki/Boglehe ... philosophy):

1 Develop a workable plan
2 Invest early and often
3 Never bear too much or too little risk
4 Diversify
5 Never try to time the market
6 Use index funds when possible
7 Keep costs low
8 Minimize taxes
9 Invest with simplicity
10 Stay the course

Everything else is just noise. Avoid the noise and stay focused on what investing is really about.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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Random Musings
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Re: QE, massive crash, Dow 3000?

Post by Random Musings »

But the problem is that even a blind pig can find an acorn once in a while. If this one call ends up right (not that low, but ends up being a big bear market), and with a little bit of self promoting, this will result with some investors following this "guru" (after the fact). Most likely, following him will result in underperformance.

Rinse and repeat with other guru's. History does repeat itself.

RM
I figure the odds be fifty-fifty I just might have something to say. FZ
aqan
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Re: QE, massive crash, Dow 3000?

Post by aqan »

AlohaJoe wrote: Wed Dec 26, 2018 9:18 pm Do you normally find random people on the Internet and then just believe everything they write?

Here's what you do: take the author's name and Google it. See what they wrote in 2016 or 2015 or 2010. Does it seem like they consistently make good predictions? Or does it seem like they have a track record of being both crazy and wrong?

However you found this author, you need to change your reading habits because you are reading quite literal garbage.

Here's what Gregory Mannarino had to say in....

2013..."An October STOCK-DROP is ahead"
2014..."The stock market is poised to fall"
2014...."The US Stock Market Is a Dead Man Walking"
2015..."Gold and silver are the best trades on earth"
2017..."You must own hard assets now"

And my favorite from early 2015:
“We are staring down the barrel of the worst financial cataclysm that has ever been seen, witnessed or even heard of in human history.”

“There is no way out of this. As hard as I think about this, I cannot envision a scenario that there is no way this will not turn into a financial disaster of epic proportions for every human being on this earth.”
3.5 years later and we still haven't seen a whisper of it. He hasn't been right about a single prediction in his entire career. I'm not sure why you think he has anything of value to say now.
thanks @AlohaJoe.. I was about to click on OP's link and read the article, you saved me some time and energy..
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Re: QE, massive crash, Dow 3000?

Post by CaliJim »

Carousel wrote: Wed Dec 26, 2018 9:08 pm Hi, everyone.

I am new to investing and I would like to get your thoughts on this.
I read a short post suggesting that QE set up an artificial floor to the stock market at Dow 6000. The author suggests that a crash could send the market below that level, for ex to Dow 3000 (=87% decline from current level).

The short post is here:
https://steemit.com/money/@marketreport ... -mannarino
First: I'm no economist. Second: I can't predict whether the market will go up or down tomorrow. I have NO IDEA.

Third: There is a relationship between money supply and stock prices. But there is no formula or historic correlation tendencies between money supply and the dow that justifies this guy's prognostications. NONE.

https://www.gold-eagle.com/article/rela ... ock-prices

The fed is not the only place where their is a hand on the money supply dial. Bank credit policies have a a huge influence on money supply as well. http://www.economicsdiscussion.net/mone ... banks/8057

https://behavioralmacro.com/there-is-ze ... l-with-it/

taking a brief look at this guy's blog. All I can say is: The guy is the worst kind of ignorant. The more ignorant people are, the more they don't realize how much they don't know.

The factors that drive the economy and the money supply and the stock market are WAY WAY WAY to complex and numerous to explain, understand, and make reliable predictions.

The market is affected not just by QE and the Fed, but by myriad unknown and unknowable factors. Millions of market participants all with their own tin foil hats.

IMHO: The feds ability to control much of anything is a sort of an illusion. They do what they do, but the range of their policy decisions is often limited. They can't raise interest rates too fast or they create chaos in the economy. They can't lower interest rates too much or too fast or they risk out of control inflation. Hence all the signalling they do giving everyone fair warning of policy changes to come. Thus giving market participants plenty of time to adjust.


Do not be afraid. Nobody can predict the future. Take everything you read on the internet with a grain of salt. Many smart people all over are working hard to avoid an economic melt down. Be skeptical of the fear mongers.
-calijim- | | For more info, click this Wiki
MotoTrojan
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Re: QE, massive crash, Dow 3000?

Post by MotoTrojan »

Carousel wrote: Wed Dec 26, 2018 9:08 pm Hi, everyone.

I am new to investing and I would like to get your thoughts on this.
I read a short post suggesting that QE set up an artificial floor to the stock market at Dow 6000. The author suggests that a crash could send the market below that level, for ex to Dow 3000 (=87% decline from current level).

The short post is here:
https://steemit.com/money/@marketreport ... -mannarino

I got curious and started reading articles on QE. Most of what I read said that QE was helpful and the unwinding appears to be proceeding in good order. However, Investopedia said this: "Some believe the low-interest rate policy of the Federal Reserve after the dotcom crash in the late 1990s helped to inflate the early 21st-century housing bubble in exactly this manner. It is theoretically possible stock market prices could crash like those housing prices in 2008-09 if the same phenomenon results from QE" (from Sept 2018).

The federal reserve website shows that 400 bn of the 4.5 trn has moved off the balance sheet through the normalization process. There's a lot left to go, even if the "new normal" involves (as I've seen suggested) 2x the asset level of 2007.

Will the next crash take us back to 2007 levels? I would like to hear your thoughts on this.

(Please note I searched the forum for a similar thread and didn't find one. If I missed it, just point me there.)

Thank you! I hope everyone is having a wonderful holiday season.
Carousel
No expert here but I can’t imagine that QE has boosted earnings enough to rationalize the P/E (even using the more conservative trailing figure) that a Dow 3000 would generate.
boglerdude
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Re: QE, massive crash, Dow 3000?

Post by boglerdude »

To the business owners and those who work for a business:

Can you give examples of projects undertaken because rates are ~2% vs ~8%
Last edited by boglerdude on Fri Dec 28, 2018 6:52 am, edited 1 time in total.
magneto
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Re: QE, massive crash, Dow 3000?

Post by magneto »

Carousel wrote: Wed Dec 26, 2018 9:08 pm 1. I read a short post suggesting that QE set up an artificial floor to the stock market at Dow 6000. The author suggests that a crash could send the market below that level, for ex to Dow 3000 (=87% decline from current level.
2. Most of what I read said that QE was helpful and the unwinding appears to be proceeding in good order.
3. Will the next crash take us back to 2007 levels? I would like to hear your thoughts on this.
4. Thank you! I hope everyone is having a wonderful holiday season.
Carousel
1. QE and low interest rates certainly inflated asset prices.
2. QE may have saved the world from a rerun of the 30's. How the unwinding progresses remains to be seen.
3. Sounds almost too good to be true - cheaper Stocks
4. Thank you and a happy new year.
'There is a tide in the affairs of men ...', Brutus (Market Timer)
Old_Dollar
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Re: QE, massive crash, Dow 3000?

Post by Old_Dollar »

Delete
Last edited by Old_Dollar on Wed Jan 02, 2019 7:06 pm, edited 1 time in total.
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bottlecap
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Re: QE, massive crash, Dow 3000?

Post by bottlecap »

I think theory and numbers can tell you that the Fed has inflated asset prices. And that certainly was its goal for a time.

But no one knows what the floor is or what the next crash looks like, however. It can't be calculated. I can't be predicted.

You have to play the game, even if the environment in which it is played is sometimes artificial.

Good luck,

JT
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Re: QE, massive crash, Dow 3000?

Post by an_asker »

AlohaJoe wrote: Wed Dec 26, 2018 9:18 pm Do you normally find random people on the Internet and then just believe everything they write?

Here's what you do: take the author's name and Google it. See what they wrote in 2016 or 2015 or 2010. Does it seem like they consistently make good predictions? Or does it seem like they have a track record of being both crazy and wrong?

However you found this author, you need to change your reading habits because you are reading quite literal garbage.

Here's what Gregory Mannarino had to say in....

2013..."An October STOCK-DROP is ahead"
2014..."The stock market is poised to fall"
2014...."The US Stock Market Is a Dead Man Walking"
2015..."Gold and silver are the best trades on earth"
2017..."You must own hard assets now"

And my favorite from early 2015:
“We are staring down the barrel of the worst financial cataclysm that has ever been seen, witnessed or even heard of in human history.”

“There is no way out of this. As hard as I think about this, I cannot envision a scenario that there is no way this will not turn into a financial disaster of epic proportions for every human being on this earth.”
3.5 years later and we still haven't seen a whisper of it. He hasn't been right about a single prediction in his entire career. I'm not sure why you think he has anything of value to say now.
GIve it to him - at least the guy is consistent ;-)
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Re: QE, massive crash, Dow 3000?

Post by Valuethinker »

boglerdude wrote: Fri Dec 28, 2018 3:17 am To the business owners and those who work for a business:

Can you give examples of projects undertaken because rates are ~2% vs ~8%
Just about everything. For various reasons I cannot tell you what industries I know other than to say financial services gives one a perspective across a lot of industries.

A big part of this is real rates. So when hurdle rates were 10%+ inflation was forecast to be 4-5% say.

Hurdle rates have not fallen as fast as inflation has, but I would say 4-5% real is what people are working on out there. If you leaf through Report & Accounts there are often disclosures re discount rates - for example Diageo does so (Guinness and Johnnie Walker) I believe-- it's around 8% nominal (5% real).

If interest rates were still 8% companies would still be looking at 13%+ discount rates. And they would not be buying back shares as much as they are - it would be too expensive. Look at PE fund hurdle rates for "carried interest" (performance fee, normally 20% of upside above a benchmark rate) which were 10-12% in the early 90s, then 8%, now are 6% and some funds have raised with a 0% hurdle.
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Re: QE, massive crash, Dow 3000?

Post by Valuethinker »

JBTX wrote: Thu Dec 27, 2018 2:52 am QE is widely misunderstood. Many think of it as buying and selling bonds with the cash flowing directly into and out of the economy. But I've read a couple of articles that by some balance sheet math it can be shown that the money spent on bonds ends up going into bank reserves with the fed. It doesn't get lent out per se, and doesn't flow into the economy. It's impact is more subtle, by buying bonds they are increasing bond prices and decreasing long term yields. This is why QE didn't have a dramatic effect on the economy, and why a slow unwinding shouldn't be catastrophic.

https://www.google.com/amp/s/www.cnbc.c ... /100760150
It turns out to be a good article when at the end it notes that increasing reserves of banks is not the same thing as increasing their loans. If there's no demand for the loans, they stay as reserves.

Another point about QE which is often missed, but Paul Krugman made pretty well. If we believe in Rational Expectations (which almost all of his critics do) then an increase in the Money Supply will lead to a permanent increase in the price level (ie inflation) *only if* the increase in the Money Supply is expected to be permanent. Thus "printing money" by Venezuela or Zimbabwe is inflationary. But for Central Banks in developed countries, the market expects (rationally) that the CBs will eventually pull the money out of the system again once the economy is going close to full employment. CBs have high credibility in fighting inflation (hard won in the early 1980s) and thus the market (rationally) believes they will damp down any increase in Money Supply once inflation exceeds the target rate (normally 2%).

So how does QE actually work then?

- 1. it lowers long term borrowing rates on risk free debt and thus should over time cause risky (corporate) debt to have lower interest rates. It seems empirically true that that has been the case - borrowing rates got to be the lowest in history.

That will inflate asset prices e.g. of real estate. Which over time will stimulate more investment in assets. If your "Tobin's Q" (ratio of the market value of assets over their replacement cost) increases then you can increase the denominator (by borrowing and constructing new assets - think of Netflix's purchases of content and investment in subscriber base) and thus increase your market value by more than the amount borrowed (similar inflation effects will take place for new equity raised eg the Venture Capital boom we have experienced).

That investment in assets (Netflix, Uber, then the property companies that construct the buildings for new offices in major cities for these companies, then the condos built to house the young workers etc) stimulates the economy.

- 2. it causes a devaluation of the exchange rate. Exports are more competitive. Import substitution takes place. Countries like the UK benefit more from tourism (that effect is particularly noticeable in the case of Iceland).

The problem with 2 is we cannot all do it. The UK managed a c. 30% devaluation on a trade weighted basis from its peak pre Crisis. Iceland of course managed much more. Ireland and Greece could of course not devalue at all being part of the Eurozone, which meant they had to undergo a real devaluation (cutting domestic costs - wages & salaries, property etc. etc.) which is much more painful (wages and prices are "sticky downwards" they tend to not go below 0% change - even in Spain, say, the vast majority of pay rises were clustered around 0) and that leads to big increases in unemployment and slack resources (think empty buildings & bankrupt businesses).

But somewhere like the USA struggles to devalue its currency. Something over 50% of world trade is denominated in USD and so the effects of a USD devaluation on US exports & import substitution is muted -- it's a secondary price effect. If the USD falls relative to the EUR or the Renimbi, then income effects cause those countries to import more oil & soybeans, say, because they are cheaper in their home currencies. That in the long run may lead to higher prices and thus stimulate the US economy.

China staged a real revaluation - domestic wages rose very fast, faster than productivity. China became less competitive, and did not choke off that inflation by allowing its currency to float upwards, which would have caused domestic unemployment and unrest. In fact, we are now at the point where China is sufficiently uncompetitive that it is trying desperately to avoid a devaluation of its currency.

Effectiveness of QE

I think all the empirical research suggests that the first "burst" is quite effective - in part because markets were not expecting it. That was certainly true after Mario Draghi's Whatever it takes speech in July 2012, which saved the Euro.

However it has diminishing effectiveness with each subsequent dose.
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Re: QE, massive crash, Dow 3000?

Post by JBTX »

Valuethinker wrote: Fri Dec 28, 2018 11:45 am
JBTX wrote: Thu Dec 27, 2018 2:52 am QE is widely misunderstood. Many think of it as buying and selling bonds with the cash flowing directly into and out of the economy. But I've read a couple of articles that by some balance sheet math it can be shown that the money spent on bonds ends up going into bank reserves with the fed. It doesn't get lent out per se, and doesn't flow into the economy. It's impact is more subtle, by buying bonds they are increasing bond prices and decreasing long term yields. This is why QE didn't have a dramatic effect on the economy, and why a slow unwinding shouldn't be catastrophic.

https://www.google.com/amp/s/www.cnbc.c ... /100760150
It turns out to be a good article when at the end it notes that increasing reserves of banks is not the same thing as increasing their loans. If there's no demand for the loans, they stay as reserves.

Another point about QE which is often missed, but Paul Krugman made pretty well. If we believe in Rational Expectations (which almost all of his critics do) then an increase in the Money Supply will lead to a permanent increase in the price level (ie inflation) *only if* the increase in the Money Supply is expected to be permanent. Thus "printing money" by Venezuela or Zimbabwe is inflationary. But for Central Banks in developed countries, the market expects (rationally) that the CBs will eventually pull the money out of the system again once the economy is going close to full employment. CBs have high credibility in fighting inflation (hard won in the early 1980s) and thus the market (rationally) believes they will damp down any increase in Money Supply once inflation exceeds the target rate (normally 2%).

So how does QE actually work then?

- 1. it lowers long term borrowing rates on risk free debt and thus should over time cause risky (corporate) debt to have lower interest rates. It seems empirically true that that has been the case - borrowing rates got to be the lowest in history.

That will inflate asset prices e.g. of real estate. Which over time will stimulate more investment in assets. If your "Tobin's Q" (ratio of the market value of assets over their replacement cost) increases then you can increase the denominator (by borrowing and constructing new assets - think of Netflix's purchases of content and investment in subscriber base) and thus increase your market value by more than the amount borrowed (similar inflation effects will take place for new equity raised eg the Venture Capital boom we have experienced).

That investment in assets (Netflix, Uber, then the property companies that construct the buildings for new offices in major cities for these companies, then the condos built to house the young workers etc) stimulates the economy.

- 2. it causes a devaluation of the exchange rate. Exports are more competitive. Import substitution takes place. Countries like the UK benefit more from tourism (that effect is particularly noticeable in the case of Iceland).

The problem with 2 is we cannot all do it. The UK managed a c. 30% devaluation on a trade weighted basis from its peak pre Crisis. Iceland of course managed much more. Ireland and Greece could of course not devalue at all being part of the Eurozone, which meant they had to undergo a real devaluation (cutting domestic costs - wages & salaries, property etc. etc.) which is much more painful (wages and prices are "sticky downwards" they tend to not go below 0% change - even in Spain, say, the vast majority of pay rises were clustered around 0) and that leads to big increases in unemployment and slack resources (think empty buildings & bankrupt businesses).

But somewhere like the USA struggles to devalue its currency. Something over 50% of world trade is denominated in USD and so the effects of a USD devaluation on US exports & import substitution is muted -- it's a secondary price effect. If the USD falls relative to the EUR or the Renimbi, then income effects cause those countries to import more oil & soybeans, say, because they are cheaper in their home currencies. That in the long run may lead to higher prices and thus stimulate the US economy.

China staged a real revaluation - domestic wages rose very fast, faster than productivity. China became less competitive, and did not choke off that inflation by allowing its currency to float upwards, which would have caused domestic unemployment and unrest. In fact, we are now at the point where China is sufficiently uncompetitive that it is trying desperately to avoid a devaluation of its currency.

Effectiveness of QE

I think all the empirical research suggests that the first "burst" is quite effective - in part because markets were not expecting it. That was certainly true after Mario Draghi's Whatever it takes speech in July 2012, which saved the Euro.

However it has diminishing effectiveness with each subsequent dose.

All good stuff!

As to this:
It turns out to be a good article when at the end it notes that increasing reserves of banks is not the same thing as increasing their loans. If there's no demand for the loans, they stay as reserves.
I think what this and similar articles are saying is actually demand is basically independent of supply. Bank reserves are not available for lending. At all. The popular notion that the reason qe wasn't effective is because nobody wanted to borrow isn't really correct. Those funds aren't available for lending period.

I first read a similar article that went into much more detail. I think it was a pdf and I think it was from a guy from Fitch. Changed the way I thought about qe. I have not been able to find it since.
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Re: QE, massive crash, Dow 3000?

Post by boglerdude »

> Bank reserves are not available for lending

So I go get a loan from the bank, they open the vault and give me cash. If they dont have it, they borrow it from another bank. Those arent "reserves?"
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nedsaid
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Re: QE, massive crash, Dow 3000?

Post by nedsaid »

JBTX wrote: Thu Dec 27, 2018 2:52 am QE is widely misunderstood. Many think of it as buying and selling bonds with the cash flowing directly into and out of the economy. But I've read a couple of articles that by some balance sheet math it can be shown that the money spent on bonds ends up going into bank reserves with the fed. It doesn't get lent out per se, and doesn't flow into the economy. It's impact is more subtle, by buying bonds they are increasing bond prices and decreasing long term yields. This is why QE didn't have a dramatic effect on the economy, and why a slow unwinding shouldn't be catastrophic.

https://www.google.com/amp/s/www.cnbc.c ... /100760150
My understanding was that a lot of the liquidity created by monetary and fiscal policy after the financial crisis pretty much sat around and did nothing. Lots piled up on the balance sheets of US Corporations (a trillion?), lots piled up as bank reserves at the Fed (another trillion?), and since bank lending in the aftermath of the financial crisis was subdued to say the least, lots probably piled up at the banks. The savings rate of individuals also went up. Another way of saying it was there was lots of cash but very low velocity of money, much of it just sat there.

Don't want to say too much more, hard to know how far to go without violating forum rules.
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Re: QE, massive crash, Dow 3000?

Post by JBTX »

nedsaid wrote: Sun Dec 30, 2018 12:28 am
JBTX wrote: Thu Dec 27, 2018 2:52 am QE is widely misunderstood. Many think of it as buying and selling bonds with the cash flowing directly into and out of the economy. But I've read a couple of articles that by some balance sheet math it can be shown that the money spent on bonds ends up going into bank reserves with the fed. It doesn't get lent out per se, and doesn't flow into the economy. It's impact is more subtle, by buying bonds they are increasing bond prices and decreasing long term yields. This is why QE didn't have a dramatic effect on the economy, and why a slow unwinding shouldn't be catastrophic.

https://www.google.com/amp/s/www.cnbc.c ... /100760150
My understanding was that a lot of the liquidity created by monetary and fiscal policy after the financial crisis pretty much sat around and did nothing. Lots piled up on the balance sheets of US Corporations (a trillion?), lots piled up as bank reserves at the Fed (another trillion?), and since bank lending in the aftermath of the financial crisis was subdued to say the least, lots probably piled up at the banks. The savings rate of individuals also went up. Another way of saying it was there was lots of cash but very low velocity of money, much of it just sat there.

Don't want to say too much more, hard to know how far to go without violating forum rules.
My view as to forum rules is as long as it is factual, as it relates to historical events and isn't political or speculative about future policy or events it is generally OK. Hopefully I am correct.

I think most of what you said is probably true. My point was more narrow and more specific to QE. The narrative that QE didn't work because institutions just hoarded it due to lack of demand (a narrative that I repeated until I came to think Otherwise) isn't exactly correct. The more specific answer is qe funds are not available for lending or consumption. They by definition accumulate as bank reserves. The purpose of qe was to lower long term interest rates, not to inject newly created money into the economy.
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