Loser Araysar
Chief Russia Reporter. Stock Pals CEO. Head of AI.
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Thought I saw some of you buy GOOGL shares recently
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Investing General Discussion
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Blazin
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Can't say I follow your logic, that money was printed and is in the system. There has been no dramatic rise in the stock market. 22yr rolling average real returns are at the medium level. We aren't even in the ballpark of a bubble compared to historical. I have written volumes on secular trends so I get what you are saying, I'm not going to rehash 20 paragraphs talking about demographics it's tehre if you want to see. The periods you are talking about are DEFLATIONARY periods and they are every bit as caused by over capacity as they are monetary policy.
The boom proceeds bust. Where boom?
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Sanrith Descartes
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GOOGL dipped back down to just a hair above the 100-DMA. Gave it some thought and filled the position I had up to a quarter position. If this support fails then I will look to start loading up at the 200-DMA ($152)
Masakari
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Even though QE introduced a lot of money into the system, it led to significant asset price inflation that hasn’t really corrected. The sharp rises in stock prices and real estate values during that period suggest they were inflated compared to historical norms.
Regarding the 22-year rolling average real returns and historical comparisons, I understand they’re useful, but do you believe they fully capture QE’s impact? QE involved massive purchases of government and mortgage-backed securities, which created excess liquidity and drove up asset prices. The influx of capital contributed to inflated valuations that long-term averages might miss. Even if extreme bubbles aren’t obvious right now, the speculative effects from QE can still be influencing the market.
Sanrith Descartes
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Gravel
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I've been trying to point that out the last 2+ years.
With as much money as has been printed, the stock market should be double where it's at right now. I'm assuming tons of rich are just sitting on cash for some reason, because it certainly hasn't shown up in other countries or assets.
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Blazin
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I believe you are too focused on QE, $6T that was accumulated largely 4 years ago. For the last two years fed balance sheet is in decline, if you want it to go back to the way it was, well that isn't going to happen. Just likely people still waiting for the Fed Bal sheet to go back to pre GFC levels.
Fiscal impulse is a far bigger gorilla than QE. Rather than disagree about this QE induced asset bubble, can you tell me the mechanism of it deflating? Why do asset prices ahve to go down, what drives them there? What happens to that excess liquidity you referred to.
Didn’t we have this exact same kind of head fake back in April where red day went green on fed speak then tanked red again suddenly. The next day was bright green and that rally lasted 2 months.
Not that i would say any rally is the slam dunk right now considering the earnings releases next week could make or break any trend.
Blazin
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Yup bottom was already in at that point. One data point making me skeptical of bottom is the complete lack of volume. April volume wasn't great either but we still bottomed on 100+M shares in SPY . Today was a ho hum 60M even less than yesterday. I only put $25k in today at the close (So for those keeping score now about 10% invested 90%cash). I still feel most likely outcome is a boring 5-7% correction. Likely to start buying heavier tomorrow if we can get a drop into 432-435 range.
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Masakari
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As the Fed raises interest rates to combat inflation, borrowing costs increase, making financing investments and purchases more expensive, which leads to a reduction in demand for stocks and real estate. The Fed’s quantitative tightening withdraws liquidity from the system, reducing the amount of money available for speculative investments and driving asset prices down. This correction happens because higher borrowing costs and reduced liquidity cause investors to reassess the risk and return of their investments, resulting in a sell-off of overvalued assets. The excess liquidity might then be absorbed into safer, less speculative assets, contributing to a more stable market environment.
Blazin
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That's just basic finance/economics, I'm not asking for general theory but what you see today that has you concerned about this asset bubble. The QE has been in decline for two years and you also tell me that the market is up bigly, so how do you square that with what you just posted?
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Blazin
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Let me state it another way. You are fearing deflation, caused by over tightening into a booming economy.
My first rebuttal:
There is no booming economy
Second rebuttal:
The Fed is more likely to loosen than tighten in the near term.
So for this asset bubble to pop we have to have a greater draining of liquidity than we have seen so far, obviously the market has gone up with the removal of QE not gone down. '22 was a cyclical bear (correction) and was likely the effect your are talking about. So why after it has happened are you still seeing as the most probable outcome?
For the Fed to raise means we would need a tick up in inflation coupled with the labor market staying strong. This Fed is going to take the mandate of employment as higher priority than inflation unless the inflation over shoot was significantly worse than the labor one.
I see inflation staying higher than it has been the last 20 years, as I've mentioned before it's the only way out of this fiscal deficit. I just don't see what data you are looking at today that tells you further tightening is coming as the next move.
You are correct about the mechanism of a deflationary decline I'm just not seeing the why of it.
My first rebuttal:
There is no booming economy
Second rebuttal:
The Fed is more likely to loosen than tighten in the near term.
So for this asset bubble to pop we have to have a greater draining of liquidity than we have seen so far, obviously the market has gone up with the removal of QE not gone down. '22 was a cyclical bear (correction) and was likely the effect your are talking about. So why after it has happened are you still seeing as the most probable outcome?
For the Fed to raise means we would need a tick up in inflation coupled with the labor market staying strong. This Fed is going to take the mandate of employment as higher priority than inflation unless the inflation over shoot was significantly worse than the labor one.
I see inflation staying higher than it has been the last 20 years, as I've mentioned before it's the only way out of this fiscal deficit. I just don't see what data you are looking at today that tells you further tightening is coming as the next move.
You are correct about the mechanism of a deflationary decline I'm just not seeing the why of it.
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Gravel
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This is the psychological effect of the markets that most people can never really get over and it's why they either don't invest at all, pull their money out at the wrong time, or invest too conservatively.
The idea that the market can maintain 10% average gains is really hard for people to rationalize. It seems like way too much. You shouldn't be able to have a 20% year followed by a 30% year. But it happens at least once a decade.
The idea that the market can maintain 10% average gains is really hard for people to rationalize. It seems like way too much. You shouldn't be able to have a 20% year followed by a 30% year. But it happens at least once a decade.
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Blazin
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What's great is many know the avg over time but the market very rarely does that average as it's yearly return. If it's going up it tends to go up a significant clip over the long term average. Because declines are %s of the top they have a powerful effect of moderating yearly gains over time. You don't need them very often, and fortunately we don't get them very often. We get them so rarely most amateur followers even can name the negative years by memory.
I don't blame people for the fear though we are about 12 years into this trend and they last about 20 years, so while gains may accelerate there is going to be plenty of fear to go along with it as it gets longer in the tooth.
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Sanrith Descartes
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Not that I want to see it again, but those Covid limit downs says were the most exciting investing days ever. Down periods are where real money can be made.
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I have no cause to dispute any of this. What I would ask is how does the continual deficit spending by congress play into all this? The analysis I read says that this is the real source of the inflation, not the Fed, and therefor there can be no decrease of inflation until congressional spending is brought back towards pre-covid levels. This in turn means that the Fed cannot decrease rates, at least without triggering inflation once again. I'd maaaaybe quibble with your assessment of employment rates influencing rate cuts one way or another due to the Fed having inflation targets in their charter and not employment rates (apologies if I brainfarted that one and it IS in their charter).
My own read on whether we get rate cuts is that the Fed is in between a rock and a hard place. If they raise rates to combat inflation caused by congressional deficit spending, it increases the real deficit level due to the interest payments on the existing debt increasing. This of course triggers anger from the media and congress (yet I repeat myself), and this causes congress to pressure the Fed, perhaps even passing laws to change things there. Tho that's a nuclear option, IMO at least. The last thing that congress will do is decrease deficit spending, because the only things that they can cut that will meaningfully impact those gigantic numbers are 'third rail' subjects like medicare, medicaid, and the military.
Alternatively, if they cut rates, inflation rates are likely to take off again and quickly. The Fed knows this and it's specifically against their charter, so when people complain they can point at the sign again. In the short term, wall st. and congress would be happy, money being worth less would accelerate once again. The people will be unhappy and they may show this unhappiness at the polls, but I've yet to see congress care about this enough to take actual action about it in my lifetime. This alternative seems to be like the no brainer play based upon a cynical interpretation of the machinations happening behind the scenes, and yet it hasn't really happened since we hit the ~5% rate several months ago despite the massive wailing and gnashing of teeth from many of the most powerful corners of the halls of power.
So what's going to happen? My own non-technical feels-based analysis is market melt-up/mild pump into November, then intentional market dump between Nov - Feb 1st to blame the incoming administration. Usual caveat of all predictions wrong or your money back!
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Blazin
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Well that is where I was trying to lead him but he was too slow between responses. The question being why was the market going up if qe and liquidity was in decline? And you have hit the answer. The fiscal impulse is far bigger factor now to the tune of a covid bailout every single year .
It’s the reason I don’t see a deflationary cycle right now , when our govt is deficit spending on this level that is extremely hard environment to see declining prices .
Tech is always the unknown it drives productivity and we have a very large population cohort entering their prime and that is when we tend to get the best productivity gains. So these two gorillas are going to battle it out each tugging a different direction. I think the net of it will be inflation that for better part of this decade will be 2-4%.
Then in early 2030 we can all have our worst fears come to fruition. But who knows s&p 10-12,000 by then? Just to then get cut in half and wipe out years of gains .
We have likely entered or will soon be entering the give back range, the part of the secular bull cycle that will all be given back during the next secular bear
It’s the reason I don’t see a deflationary cycle right now , when our govt is deficit spending on this level that is extremely hard environment to see declining prices .
Tech is always the unknown it drives productivity and we have a very large population cohort entering their prime and that is when we tend to get the best productivity gains. So these two gorillas are going to battle it out each tugging a different direction. I think the net of it will be inflation that for better part of this decade will be 2-4%.
Then in early 2030 we can all have our worst fears come to fruition. But who knows s&p 10-12,000 by then? Just to then get cut in half and wipe out years of gains .
We have likely entered or will soon be entering the give back range, the part of the secular bull cycle that will all be given back during the next secular bear
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Masakari
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I agree that we're not in a booming economy, and I believe the Fed is maintaining positive market sentiment through continuous bailouts, which has created an unhealthy environment. While the Fed’s monetary policies since 2008 aimed to stabilize the economy, they’ve led to unintended consequences and left them with fewer traditional tools to manage the markets effectively. Given their current predicament, I think the Fed may opt to keep raising rates and reduce bailouts under the next administration, potentially forcing a difficult and painful correction.
I don’t expect everyone to agree with what I have to say and welcome any criticism. It's all based on analyzing macroeconomic policies and historical trends over the past century and trying anticipate the most likely path forward for those in power because I don't think it's going to be pretty no matter which way it gets cut.
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My bad.
But it is nice to see independent confirmation of others' analysis that I have parroted here to seem smarter on this subject than I am
