This Time is Different

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Ron Scott
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This Time is Different

Post by Ron Scott » Wed Oct 10, 2018 9:13 am

...from the Reinhart/Rogoff book, take-aways:

• Otherwise-savvy people ignore the telltale signs of a bubble when they are in the
grasp of “this-time-is-different syndrome.”
• Even brilliant thinkers like former Federal Reserve Chairman Alan Greenspan fall
victim to this syndrome.
• Bankers and economists in the ’20s predicted that wars would not recur and the
future would be stable.
• From 2003 to 2007, conventional wisdom said central bankers’ expertise and Wall
Street innovations justified soaring home prices and rising household debt.
• In fact, rising home prices and financial innovation are strong indicators of a bubble.
• Currency debasement was common for centuries. In the past 100 years, inflation
has replaced debasement.
• Sovereign defaults are a normal part of global capitalism, although they ebb and flow.
• Financial crises have occurred regularly over the past two centuries.
• To avoid future bubbles, bankers and economists should use an early-warning
system and a stricter regulatory scheme.

What do you think?
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.

sco
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Re: This Time is Different

Post by sco » Wed Oct 10, 2018 11:34 pm

Ron Scott wrote:
Wed Oct 10, 2018 9:13 am
...from the Reinhart/Rogoff book, take-aways:

• To avoid future bubbles, bankers and economists should use an early-warning
system and a stricter regulatory scheme.


What do you think?
When has this not just caused another issue, most of the time worst than the first?

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bottlecap
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Re: This Time is Different

Post by bottlecap » Thu Oct 11, 2018 6:27 am

Most of the statements are hard to dispute.

If their conclusion is that the central bankers are the problem, however, the solution of giving them more power is laughable.

And there is no early warning system. If there were, few economists would agree on what it was. And those on the Federal Reserve would think they knew better anyway.

JT

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randomizer
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Re: This Time is Different

Post by randomizer » Thu Oct 11, 2018 7:04 am

Ron Scott wrote:
Wed Oct 10, 2018 9:13 am
What do you think?
I read the book and quite enjoyed it. We will continue to experience booms and busts of varied sizes and durations. I'm just going to keep on following my IPS and go along for the ride.
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Re: This Time is Different

Post by Ron Scott » Thu Oct 11, 2018 8:53 am

rising home prices and financial innovation are strong indicators of a bubble

OK, but most of the time home prices are rising and someone is selling some financial innovation, so...
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.

retiringwhen
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Re: This Time is Different

Post by retiringwhen » Thu Oct 11, 2018 9:00 am

Ron Scott wrote:
Thu Oct 11, 2018 8:53 am
rising home prices and financial innovation are strong indicators of a bubble

OK, but most of the time home prices are rising and someone is selling some financial innovation, so...
And in both cases, the rise in housing prices has been tepid by historical norms and in fact only reverting to historical levels at the aggregate level, some cities and locations vary as always.

And as far as I can tell, there is no new nuclear bombs like MBS/CDO lurking under the current financial innovations.

Heck even tech is kinda realistic in many cases, Apple and Microsoft throw off profits almost as consistently as a regulated utility these days.

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Re: This Time is Different

Post by nisiprius » Thu Oct 11, 2018 9:50 am

Banks and the investment industry compete to hold your money. By the "investment industry" I mean industries based on securities: stockbrokers, mutual funds, and financial advisors. When you liquidate stocks and hold cash, it is bad for the investment industry. Therefore, just about everybody in the investment industry--including fellow travelers like the investment news media has a self-interest in urging that you buy stocks, and that you not sell them. Of course there are exceptions--gold dealers make money from gloom and doom. Nevertheless, overall there is going to be a definite slant toward urging investment in stocks.

Let it be noted that this includes the advice to "stay the course." I happen to believe it is sound advice (assuming you are going to invest in stocks at all), but it is also self-interested advice on the part of mutual fund companies.

If the market seems very high, people are going to say "this looks like that other time when stocks crashed, this isn't sustainable." And, of course, it follows logically that anybody who urges you to continue to buy, or at least to hold, must say "this time it's different," because what else can they possibly say?

None of this tells us anything interesting or actionable.

I will say this much. I feel that I am hearing much less "this time it's different" talk than I heard in the late 1990s. I am not hearing people introduce themselves at parties as "day-traders," as if that were an actual profession. I just got back from my high school reunion, and while a few classmates were associated with hedge funds, I do not remember anybody talking about their stock picks (or pausing in a conversation to place a trade with their cell phone). And--I don't think you can appreciate this if you did not live through it--I do not hear anything like the dead-serious, really-seem-to-believe it "new economy" talk associated with Wired magazine and commentators like Henry Blodgett, in which people seriously suggested that old metrics like profit were now irrelevant, because the discounted present value of technology, internet, and telecom companies' future pie in the sky was so astronomical that they were literally priceless.
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Rick Ferri
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Re: This Time is Different

Post by Rick Ferri » Thu Oct 11, 2018 9:53 am

Regardless of how much we learn, think and experience, we can only know a small slice of what's going on.

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Hayden
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Re: This Time is Different

Post by Hayden » Thu Oct 11, 2018 10:11 am

nisiprius wrote:
Thu Oct 11, 2018 9:50 am
Banks and the investment industry compete to hold your money. By the "investment industry" I mean industries based on securities: stockbrokers, mutual funds, and financial advisors. When you liquidate stocks and hold cash, it is bad for the investment industry. Therefore, just about everybody in the investment industry--including fellow travelers like the investment news media has a self-interest in urging that you buy stocks, and that you not sell them. Of course there are exceptions--gold dealers make money from gloom and doom. Nevertheless, overall there is going to be a definite slant toward urging investment in stocks.

Let it be noted that this includes the advice to "stay the course." I happen to believe it is sound advice (assuming you are going to invest in stocks at all), but it is also self-interested advice on the part of mutual fund companies.

If the market seems very high, people are going to say "this looks like that other time when stocks crashed, this isn't sustainable." And, of course, it follows logically that anybody who urges you to continue to buy, or at least to hold, must say "this time it's different," because what else can they possibly say?

None of this tells us anything interesting or actionable.

I will say this much. I feel that I am hearing much less "this time it's different" talk than I heard in the late 1990s. I am not hearing people introduce themselves at parties as "day-traders," as if that were an actual profession. I just got back from my high school reunion, and while a few classmates were associated with hedge funds, I do not remember anybody talking about their stock picks (or pausing in a conversation to place a trade with their cell phone). And--I don't think you can appreciate this if you did not live through it--I do not hear anything like the dead-serious, really-seem-to-believe it "new economy" talk associated with Wired magazine and commentators like Henry Blodgett, in which people seriously suggested that old metrics like profit were now irrelevant, because the discounted present value of technology, internet, and telecom companies' future pie in the sky was so astronomical that they were literally priceless.
I am hearing "this time it's different" talk like in the 1990s, coming from two camps:

"Digital transformation" -- the idea that we are currently undergoing a transformation more significant than the industrial revolution.

Block chain -- in my town, there's alot of discussion about block chain.

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Re: This Time is Different

Post by Valuethinker » Thu Oct 11, 2018 10:30 am

bottlecap wrote:
Thu Oct 11, 2018 6:27 am
Most of the statements are hard to dispute.

If their conclusion is that the central bankers are the problem, however, the solution of giving them more power is laughable.

And there is no early warning system. If there were, few economists would agree on what it was. And those on the Federal Reserve would think they knew better anyway.

JT
There's a lot of really interesting work about financial bubbles out there. In fact I have quite a nice book on conference papers (from 2002) on my shelf back home. See also what Didier Soronette has written.

One thing in 2008 was that the people who knew about these things, who were the international economists who had studied Japan, Emerging Market crises, and economic historians, were largely ignored. The prevailing view was the Alan Greenspan one (for which he later apologized) that markets were self regulating and would correct for their own risk taking activity.

Conversely the policy prescriptions that were followed once it hit the fan by Central Banks were generally much more enlightened and intelligent than, say, in 1929-1931. Ben Bernanke was one of the leading non-Japanese experts on the Japanese bubble, and it showed.

What they did confront was the limits of what monetary policy can do in such a situation. The Great Financial Crisis was not caused by bad monetary policy, it was caused by bad regulation - that's a tougher nut to crack. And monetary policy alone cannot drive recovery.

Reinhardt and Rogoff made a (genuine) mistake with a spreadsheet, and their work was used to drive through a political view, the concept of "expansionary austerity" which was a fiscal policy view and one with limited evidence in favour of.

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Re: This Time is Different

Post by Valuethinker » Thu Oct 11, 2018 10:34 am

Hayden wrote:
Thu Oct 11, 2018 10:11 am
nisiprius wrote:
Thu Oct 11, 2018 9:50 am
Banks and the investment industry compete to hold your money. By the "investment industry" I mean industries based on securities: stockbrokers, mutual funds, and financial advisors. When you liquidate stocks and hold cash, it is bad for the investment industry. Therefore, just about everybody in the investment industry--including fellow travelers like the investment news media has a self-interest in urging that you buy stocks, and that you not sell them. Of course there are exceptions--gold dealers make money from gloom and doom. Nevertheless, overall there is going to be a definite slant toward urging investment in stocks.

Let it be noted that this includes the advice to "stay the course." I happen to believe it is sound advice (assuming you are going to invest in stocks at all), but it is also self-interested advice on the part of mutual fund companies.

If the market seems very high, people are going to say "this looks like that other time when stocks crashed, this isn't sustainable." And, of course, it follows logically that anybody who urges you to continue to buy, or at least to hold, must say "this time it's different," because what else can they possibly say?

None of this tells us anything interesting or actionable.

I will say this much. I feel that I am hearing much less "this time it's different" talk than I heard in the late 1990s. I am not hearing people introduce themselves at parties as "day-traders," as if that were an actual profession. I just got back from my high school reunion, and while a few classmates were associated with hedge funds, I do not remember anybody talking about their stock picks (or pausing in a conversation to place a trade with their cell phone). And--I don't think you can appreciate this if you did not live through it--I do not hear anything like the dead-serious, really-seem-to-believe it "new economy" talk associated with Wired magazine and commentators like Henry Blodgett, in which people seriously suggested that old metrics like profit were now irrelevant, because the discounted present value of technology, internet, and telecom companies' future pie in the sky was so astronomical that they were literally priceless.
I am hearing "this time it's different" talk like in the 1990s, coming from two camps:

"Digital transformation" -- the idea that we are currently undergoing a transformation more significant than the industrial revolution.
If you throw in 3D printing, and what is going on in energy (on a longer time horizon) I might buy that or rather "at least as" the Industrial Revolution. Tim Foxon has written a book about this quite recently (it's not as good a read as it promises, so if you can get it from a library rather than buy it):

http://sro.sussex.ac.uk/71318/

3D printing really does have some amazing implications.

Dieter Helm's book "Burn Out: the end game for fossil fuels" is a much broader book than its title portends, and is an excellent read on this world we are moving towards. Helm is a respected energy economist at Oxford University.
Block chain -- in my town, there's alot of discussion about block chain.
That one I am less certain of. The cryptocurrency application seems to me to be fairly trivial and pointless (the US dollar works quite well as an e-currency, in my experience). However there may be broader commercial applications - in particular where supply chains and value chains cross company boundaries - that are quite promising.

robertmcd
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Re: This Time is Different

Post by robertmcd » Thu Oct 11, 2018 10:47 am

retiringwhen wrote:
Thu Oct 11, 2018 9:00 am
Ron Scott wrote:
Thu Oct 11, 2018 8:53 am
rising home prices and financial innovation are strong indicators of a bubble

OK, but most of the time home prices are rising and someone is selling some financial innovation, so...
And in both cases, the rise in housing prices has been tepid by historical norms and in fact only reverting to historical levels at the aggregate level, some cities and locations vary as always.

And as far as I can tell, there is no new nuclear bombs like MBS/CDO lurking under the current financial innovations.

Heck even tech is kinda realistic in many cases, Apple and Microsoft throw off profits almost as consistently as a regulated utility these days.
The nuclear bomb this time is the same thing as MBS in 2008 - BONDS, but this time it is not just mortgage bonds but sovereign bonds (which all other bonds are priced off of). In 2008 the banks held all these mortgage bonds that turned out to be worthless and that took them down. This time around the bad debt is even more widespread, and will take down banks and countries. Luckily the US dollar is the prettiest turd in the punchbowl, and even though our fiscal situation will continue to deteriorate we should be able to print our way out once again.

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Re: This Time is Different

Post by columbia » Thu Oct 11, 2018 10:58 am

There’s a fairly easy way to avoid credit risk from corporate and ex-US bonds: don’t own any.

retiringwhen
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Re: This Time is Different

Post by retiringwhen » Thu Oct 11, 2018 11:02 am

robertmcd wrote:
Thu Oct 11, 2018 10:47 am
The nuclear bomb this time is the same thing as MBS in 2008 - BONDS, but this time it is not just mortgage bonds but sovereign bonds (which all other bonds are priced off of). In 2008 the banks held all these mortgage bonds that turned out to be worthless and that took them down. This time around the bad debt is even more widespread, and will take down banks and countries. Luckily the US dollar is the prettiest turd in the punchbowl, and even though our fiscal situation will continue to deteriorate we should be able to print our way out once again.
There is always some form of bad debt in the market and downturns expose their yuckiness (this week's exhibit, Sears, Venezuela, etc.)

Are you implying that the banks and hedge funds are using collateralized debt obligations to leverage these things 4, 5, 10 times the underlying value? That is the contagion that took the world financial markets in 2007-2009 and took nearly a decade to work off the hang-over.

I see corporations who logically and largely responsibly used low interest rates to raise capital in the debt markets, and now they will have to begin to move back to more normal levels, what I don't see is folks creating massive leverage off that debt?

Maybe there are 20 more VIIIX (or whatever that leverages VIX ETN was called that failed in FEB), I just haven't seen them. BTW, that leveraged tool was tied to volatility, not debt.

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Re: This Time is Different

Post by robertmcd » Thu Oct 11, 2018 11:23 am

columbia wrote:
Thu Oct 11, 2018 10:58 am
There’s a fairly easy way to avoid credit risk from corporate and ex-US bonds: don’t own any.
Yes, but it does not mean that the contagion will not spread to US equities. European banks stocks have been getting hammered due to their exposure to USD denominated emerging markets debt that these countries loaded up on when interest rates and the US dollar were at historical lows.

Only time I will buy anything but US treasury bonds will be if we have another time of utter despair because the Fed will start buying corporate issues.

But even then I would probably rather just buy VTI

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Re: This Time is Different

Post by nisiprius » Thu Oct 11, 2018 1:24 pm

robertmcd wrote:
Thu Oct 11, 2018 10:47 am
...The nuclear bomb this time is the same thing as MBS in 2008 - BONDS, but this time it is not just mortgage bonds but sovereign bonds (which all other bonds are priced off of). In 2008 the banks held all these mortgage bonds that turned out to be worthless and that took them down. This time around the bad debt is even more widespread, and will take down banks and countries. Luckily the US dollar is the prettiest turd in the punchbowl, and even though our fiscal situation will continue to deteriorate we should be able to print our way out once again...
Instead of simply calling it a "nuclear bomb," could you put some numbers on it, please? Assuming what you consider to be a credibly bad scenario, by what percent do you expect the value of a holding of a) the Vanguard Total Bond Market Index Fund, or b) the Vanguard Intermediate-Term Treasury fund to fall?

Are you talking about -90%, like stocks in 1929?
-50%, like stocks in 2008?
-40%, like Emerging Markets bonds in 1998?
-20%, like junk bonds in 2008-2009?
-10%, like high-grade corporates in 2008?
-5%, like Vanguard Total Bond during the "Bond Massacre of 1994?"

Also, for the record, you are being a little bit loose with the term "MBS." This is what happened to GNMA mortgage-backed securities in 2008-2009 (blue); stocks, orange. Pure MBS, yet there was virtually no decline at all. The problem was only with subprime mortgages, and with complicated financial-engineering derivatives of subprime mortgages.

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Re: This Time is Different

Post by J295 » Thu Oct 11, 2018 1:30 pm

Ah .... fear and greed ... unwelcome travel companions for our pilgrimage ....

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Re: This Time is Different

Post by edgeagg » Thu Oct 11, 2018 1:54 pm

nisiprius wrote:
Thu Oct 11, 2018 1:24 pm
robertmcd wrote:
Thu Oct 11, 2018 10:47 am
...The nuclear bomb this time is the same thing as MBS in 2008 - BONDS, but this time it is not just mortgage bonds but sovereign bonds (which all other bonds are priced off of). In 2008 the banks held all these mortgage bonds that turned out to be worthless and that took them down. This time around the bad debt is even more widespread, and will take down banks and countries. Luckily the US dollar is the prettiest turd in the punchbowl, and even though our fiscal situation will continue to deteriorate we should be able to print our way out once again...
Instead of simply calling it a "nuclear bomb," could you put some numbers on it, please? Assuming what you consider to be a credibly bad scenario, by what percent do you expect the value of a holding of a) the Vanguard Total Bond Market Index Fund, or b) the Vanguard Intermediate-Term Treasury fund to fall?

Are you talking about -90%, like stocks in 1929?
-50%, like stocks in 2008?
-40%, like Emerging Markets bonds in 1998?
-20%, like junk bonds in 2008-2009?
-10%, like high-grade corporates in 2008?
-5%, like Vanguard Total Bond during the "Bond Massacre of 1994?"

Agree with nisprius and others who asked for why you believe in sovereign bonds being nuclear. Are there statistics or other data to back up this assertion? Strong claims require some degree of proof. :happy

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Re: This Time is Different

Post by robertmcd » Thu Oct 11, 2018 1:55 pm

edgeagg wrote:
Thu Oct 11, 2018 1:54 pm
nisiprius wrote:
Thu Oct 11, 2018 1:24 pm
robertmcd wrote:
Thu Oct 11, 2018 10:47 am
...The nuclear bomb this time is the same thing as MBS in 2008 - BONDS, but this time it is not just mortgage bonds but sovereign bonds (which all other bonds are priced off of). In 2008 the banks held all these mortgage bonds that turned out to be worthless and that took them down. This time around the bad debt is even more widespread, and will take down banks and countries. Luckily the US dollar is the prettiest turd in the punchbowl, and even though our fiscal situation will continue to deteriorate we should be able to print our way out once again...
Instead of simply calling it a "nuclear bomb," could you put some numbers on it, please? Assuming what you consider to be a credibly bad scenario, by what percent do you expect the value of a holding of a) the Vanguard Total Bond Market Index Fund, or b) the Vanguard Intermediate-Term Treasury fund to fall?

Are you talking about -90%, like stocks in 1929?
-50%, like stocks in 2008?
-40%, like Emerging Markets bonds in 1998?
-20%, like junk bonds in 2008-2009?
-10%, like high-grade corporates in 2008?
-5%, like Vanguard Total Bond during the "Bond Massacre of 1994?"

Agree with nisprius and others who asked for why you believe in sovereign bonds being nuclear. Are there statistics or other data to back up this assertion? Strong claims require some degree of proof. :happy
https://realinvestmentadvice.com/wp-con ... debt-1.png

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Re: This Time is Different

Post by nisiprius » Thu Oct 11, 2018 2:31 pm

Robertmcd, that chart doesn't answer my question. Please, if you wouldn't mind:

Assuming what you consider to be a credibly bad scenario, by what percent do you expect the value of a holding of a) the Vanguard Total Bond Market Index Fund, or b) the Vanguard Intermediate-Term Treasury fund to fall?

Are you talking about
-90%, like stocks in 1929?
-50%, like stocks in 2008?
-40%, like Emerging Markets bonds in 1998?
-20%, like junk bonds in 2008-2009?
-10%, like high-grade corporates in 2008?
-5%, like Vanguard Total Bond during the "Bond Massacre of 1994?"

(And, adding on to my original question: in what time frame do you expect this? Within ten years? Five? Three? before the end of 2019?)
Last edited by nisiprius on Thu Oct 11, 2018 2:40 pm, edited 1 time in total.
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Re: This Time is Different

Post by Riley15 » Thu Oct 11, 2018 2:35 pm

nisiprius wrote:
Thu Oct 11, 2018 9:50 am
Banks and the investment industry compete to hold your money. By the "investment industry" I mean industries based on securities: stockbrokers, mutual funds, and financial advisors. When you liquidate stocks and hold cash, it is bad for the investment industry. Therefore, just about everybody in the investment industry--including fellow travelers like the investment news media has a self-interest in urging that you buy stocks, and that you not sell them. Of course there are exceptions--gold dealers make money from gloom and doom. Nevertheless, overall there is going to be a definite slant toward urging investment in stocks.

Let it be noted that this includes the advice to "stay the course." I happen to believe it is sound advice (assuming you are going to invest in stocks at all), but it is also self-interested advice on the part of mutual fund companies.

If the market seems very high, people are going to say "this looks like that other time when stocks crashed, this isn't sustainable." And, of course, it follows logically that anybody who urges you to continue to buy, or at least to hold, must say "this time it's different," because what else can they possibly say?

None of this tells us anything interesting or actionable.

I will say this much. I feel that I am hearing much less "this time it's different" talk than I heard in the late 1990s. I am not hearing people introduce themselves at parties as "day-traders," as if that were an actual profession. I just got back from my high school reunion, and while a few classmates were associated with hedge funds, I do not remember anybody talking about their stock picks (or pausing in a conversation to place a trade with their cell phone). And--I don't think you can appreciate this if you did not live through it--I do not hear anything like the dead-serious, really-seem-to-believe it "new economy" talk associated with Wired magazine and commentators like Henry Blodgett, in which people seriously suggested that old metrics like profit were now irrelevant, because the discounted present value of technology, internet, and telecom companies' future pie in the sky was so astronomical that they were literally priceless.
Do you see the irony in the statement, "This time it's different" because nobody is talking about "This time it's different"?

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Re: This Time is Different

Post by nisiprius » Thu Oct 11, 2018 2:42 pm

Riley15 wrote:
Thu Oct 11, 2018 2:35 pm
I wrote:...I will say this much. I feel that I am hearing much less "this time it's different" talk than I heard in the late 1990s...
Do you see the irony in the statement, "This time it's different" because nobody is talking about "This time it's different"?
:!: Nope, I missed it. Yep, that's really what I said.
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Re: This Time is Different

Post by Riley15 » Thu Oct 11, 2018 2:51 pm

nisiprius wrote:
Thu Oct 11, 2018 2:42 pm
Riley15 wrote:
Thu Oct 11, 2018 2:35 pm
I wrote:...I will say this much. I feel that I am hearing much less "this time it's different" talk than I heard in the late 1990s...
Do you see the irony in the statement, "This time it's different" because nobody is talking about "This time it's different"?
:!: Nope, I missed it. Yep, that's really what I said.
Maybe not exactly. But what I meant was looking for these signs or lack thereof on the outside fringes about exuberance in the market or economy maybe "worked" before to indicate a pattern but may no longer mean anything. If they ever really did? Our individual experiences are probably less than 1% of what's actually going on in the world.

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Re: This Time is Different

Post by robertmcd » Thu Oct 11, 2018 2:57 pm

nisiprius wrote:
Thu Oct 11, 2018 2:31 pm
Robertmcd, that chart doesn't answer my question. Please, if you wouldn't mind:

Assuming what you consider to be a credibly bad scenario, by what percent do you expect the value of a holding of a) the Vanguard Total Bond Market Index Fund, or b) the Vanguard Intermediate-Term Treasury fund to fall?

Are you talking about
-90%, like stocks in 1929?
-50%, like stocks in 2008?
-40%, like Emerging Markets bonds in 1998?
-20%, like junk bonds in 2008-2009?
-10%, like high-grade corporates in 2008?
-5%, like Vanguard Total Bond during the "Bond Massacre of 1994?"

(And, adding on to my original question: in what time frame do you expect this? Within ten years? Five? Three? before the end of 2019?)
I would expect the both of those funds to hold up fine. With intermediate term treasury performing better.

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Re: This Time is Different

Post by DartThrower » Thu Oct 11, 2018 3:14 pm

Things can be both different, and the same, at the same time.

We live in a new era with new technologies and new parameters for economic activity. We have a newish government with new policies. All kinds of features of our environment make today look so very different from 20 years ago.

And yet the laws of economics are the same. The consequences of speculation and irresponsibility are the same. Human emotions and biases are the same. In some sense nothing has changed.

So "vive la différence" or "vive la similitude". You're right either way.
A Boglehead can stay the course longer than the market can stay irrational.

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Re: This Time is Different

Post by edgeagg » Thu Oct 11, 2018 4:20 pm

robertmcd wrote:
Thu Oct 11, 2018 1:55 pm
edgeagg wrote:
Thu Oct 11, 2018 1:54 pm
nisiprius wrote:
Thu Oct 11, 2018 1:24 pm
robertmcd wrote:
Thu Oct 11, 2018 10:47 am
...The nuclear bomb this time is the same thing as MBS in 2008 - BONDS, but this time it is not just mortgage bonds but sovereign bonds (which all other bonds are priced off of). In 2008 the banks held all these mortgage bonds that turned out to be worthless and that took them down. This time around the bad debt is even more widespread, and will take down banks and countries. Luckily the US dollar is the prettiest turd in the punchbowl, and even though our fiscal situation will continue to deteriorate we should be able to print our way out once again...
Instead of simply calling it a "nuclear bomb," could you put some numbers on it, please? Assuming what you consider to be a credibly bad scenario, by what percent do you expect the value of a holding of a) the Vanguard Total Bond Market Index Fund, or b) the Vanguard Intermediate-Term Treasury fund to fall?

Are you talking about -90%, like stocks in 1929?
-50%, like stocks in 2008?
-40%, like Emerging Markets bonds in 1998?
-20%, like junk bonds in 2008-2009?
-10%, like high-grade corporates in 2008?
-5%, like Vanguard Total Bond during the "Bond Massacre of 1994?"

Agree with nisprius and others who asked for why you believe in sovereign bonds being nuclear. Are there statistics or other data to back up this assertion? Strong claims require some degree of proof. :happy
https://realinvestmentadvice.com/wp-con ... debt-1.png
RobertMCD, I see the chart - it appears to be a rehash of this and the chart you posted doesn't look like the FRED chart (I'd believe the FRED over some others). Assuming the FRED chart is right, I still don't see the significance here - I'm probably dense, but an explanation will be useful. :confused

2015
Posts: 2163
Joined: Mon Feb 10, 2014 2:32 pm

Re: This Time is Different

Post by 2015 » Thu Oct 11, 2018 9:10 pm

Rick Ferri wrote:
Thu Oct 11, 2018 9:53 am
Regardless of how much we learn, think and experience, we can only know a small slice of what's going on.

Rick Ferri
Yes, but it's against human nature to admit this.

It could even be argued that much of what we "know" is subject to debate. The human mind/body/emotion connection apparatus is wired such that it makes just about everything we know suspect. If we're lucky, we'll approximate reality more often than not. But much of the time not for most of us.

yousha
Posts: 155
Joined: Tue Jun 12, 2018 2:36 pm

Re: This Time is Different

Post by yousha » Thu Oct 11, 2018 9:12 pm

It's a rough life if you don't weaken! That I am certain.

ImUrHuckleberry
Posts: 140
Joined: Sat Apr 15, 2017 7:44 am

Re: This Time is Different

Post by ImUrHuckleberry » Thu Oct 11, 2018 9:44 pm

2015 wrote:
Thu Oct 11, 2018 9:10 pm
Rick Ferri wrote:
Thu Oct 11, 2018 9:53 am
Regardless of how much we learn, think and experience, we can only know a small slice of what's going on.

Rick Ferri
Yes, but it's against human nature to admit this.

It could even be argued that much of what we "know" is subject to debate. The human mind/body/emotion connection apparatus is wired such that it makes just about everything we know suspect. If we're lucky, we'll approximate reality more often than not. But much of the time not for most of us.
Are you sure about that?

Pelerus
Posts: 31
Joined: Wed Mar 14, 2018 11:21 am

Re: This Time is Different

Post by Pelerus » Thu Oct 11, 2018 9:48 pm

nisiprius wrote:
Thu Oct 11, 2018 9:50 am
I will say this much. I feel that I am hearing much less "this time it's different" talk than I heard in the late 1990s. I am not hearing people introduce themselves at parties as "day-traders," as if that were an actual profession. I just got back from my high school reunion, and while a few classmates were associated with hedge funds, I do not remember anybody talking about their stock picks (or pausing in a conversation to place a trade with their cell phone). And--I don't think you can appreciate this if you did not live through it--I do not hear anything like the dead-serious, really-seem-to-believe it "new economy" talk associated with Wired magazine and commentators like Henry Blodgett, in which people seriously suggested that old metrics like profit were now irrelevant, because the discounted present value of technology, internet, and telecom companies' future pie in the sky was so astronomical that they were literally priceless.
There are generally two types of bubbles: narrative bubbles and credit bubbles. Narrative bubbles hinge on a good story; credit bubbles just require cheap money. 2000 was a narrative bubble, while 2007 was a credit bubble.

2018 (?) would also be classified as a credit bubble, so “this time is different” is not required. Just a lot of money chasing the same assets. The money has chased those same assets, i.e. risk assets, because they were the “only game in town” for a long time on account of ZIRP. That’s exactly why 3.25% on the 10 year is so scary to the market - risk assets suddenly aren’t the only game in town any more.

2015
Posts: 2163
Joined: Mon Feb 10, 2014 2:32 pm

Re: This Time is Different

Post by 2015 » Thu Oct 11, 2018 9:51 pm

ImUrHuckleberry wrote:
Thu Oct 11, 2018 9:44 pm
2015 wrote:
Thu Oct 11, 2018 9:10 pm
Rick Ferri wrote:
Thu Oct 11, 2018 9:53 am
Regardless of how much we learn, think and experience, we can only know a small slice of what's going on.

Rick Ferri
Yes, but it's against human nature to admit this.

It could even be argued that much of what we "know" is subject to debate. The human mind/body/emotion connection apparatus is wired such that it makes just about everything we know suspect. If we're lucky, we'll approximate reality more often than not. But much of the time not for most of us.
Are you sure about that?
Not at all, which I view to be a good thing.

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