Magox Posted March 5, 2013 Share Posted March 5, 2013 Is it there on solid fundamentals? Do the Fed's easy money policies have a large role? Is it sustainable? Does the divergence between the macro economy and corporate profits matter and if so, should we worry? Thoughts Link to comment Share on other sites More sharing options...
B-Large Posted March 5, 2013 Share Posted March 5, 2013 I'd venture to guess cleaning up balances sheets and cutting cuts as deep as they can has helped deliver on estimated earnings, but without top line growth, that probably doesn't bode well for long term sustainability... I assume outside of instutional investors even dumb scrocks like myself look at my 403B, Roth, ETF accounts and see that is has rebounded and performed quite nicely in the last 90-180 days and that makes the average guy a little more confident that the economy is on the a sustained mend, evening considering employment issues. Heck, housing prices are heading back up in Denver proper, heck I might just finish the basement and sell my castle if this continues... Link to comment Share on other sites More sharing options...
Oxrock Posted March 5, 2013 Share Posted March 5, 2013 Double edged sword. DOW goes up. 401k looks good. Price at pump goes up. Checking account looks bad. Every time I here about the markets rising, I cringe a little because I know that gas prices have risen as well. Link to comment Share on other sites More sharing options...
Koko78 Posted March 5, 2013 Share Posted March 5, 2013 Clearly this is due to the leadership of the Chosen One, and has absolutely nothing to do with the economy being cyclical. Link to comment Share on other sites More sharing options...
IDBillzFan Posted March 5, 2013 Share Posted March 5, 2013 Clearly this is due to the leadership of the Chosen One, and has absolutely nothing to do with the economy being cyclical. Agreed. There is tremendous confidence in the country right now. People have had no problem adjusting to a 2% drop in take home pay, and everyone appreciates that the current administration is doing everything it can to reduce government waste, cut spending, and bring down the costs of health care while working across the aisle to provide incentives for companies to keep their work in the US. I wouldn't be surprised if Friday's job report shows we've added anywhere from 650,000-750,000 new jobs last month. Link to comment Share on other sites More sharing options...
Magox Posted March 5, 2013 Author Share Posted March 5, 2013 I think there are some developments that have occurred on a corporate level that have been very advantageous to their well-being along with the stock market. However, the disconnect on a macro level to corporate earnings is alarming to say the least. I don't believe it's sustainable, that's just my personal view. I read an editorial in the USA TODAY, and it mirrors many of my same thoughts, even some that I've spoken about here on this site. Four years after the stock market hit bottom, it is flirting with an all-time high. On Monday, the Dow Jones industrial average enjoyed its second highest close ever and was just 37 points away from a new record — more than double its level during the dark days of March 2009. The turnabout is testament to healthy corporate profits and the resilience of America's free enterprise system. And it's a huge relief to workers whose 401(k) plans are tied to equities. But the risky little secret of the rebound is that it is powered in significant part by the easy-money policies of the Federal Reserve, which must one day end. To combat the Great Recession, the Fed has bought trillions of dollars of mortgage bonds and U.S. Treasuries to juice the housing market and the economy in general. On balance these purchases — which go by the non-threatening name of "quantitative easing" — have been warranted, given the deep economic problems caused by the financial crisis. But the time is approaching to scale back the bond-buying spree and get ready to unwind some of the Fed's massive portfolio, which now tops $3 trillion. The longer the policy lasts, the more likely it will end unhappily. The Federal Reserve's purchases have driven interest rates to near zero. This has stimulated the economy but not without cost. Savers, particularly older ones trying to live on income from their investments, are starved for safe options. They've been forced into stocks, which is one reason the market has been acting as if it's on steroids. Further, with borrowing costs low, Congress and the White House have less incentive to rein in the national debt. Rock-bottom interest rates have also distorted markets. The best indication that the Fed's bond-buying purchases are pushing stocks up artificially is that investors run for cover whenever there is a hint that the Fed might change course, as happened recently. On Monday, billionaire superinvestor Berkshire Hathaway CEO Warren Buffett told CNBC that markets are on a "hair trigger" waiting for signs of change from the Fed. The market is "hooked on the drug" of easy money, Dallas Fed President Richard Fisher told Reuters. Fisher's comparison of Fed policies to a drug is apt. Markets might not like the idea of the drug being withdrawn now, when the Fed holds a portfolio of $3 trillion. But the withdrawal symptoms will be a lot worse once the portfolio grows to $4 trillion, or more. No one has a clear idea how the Fed plans to unload such staggering sums. As it sells off its hoard, the value of all bonds could plunge, more than wiping out the small returns bond investors are getting. But holding onto the bonds as the economy stabilizes would set off inflation, which the Fed is required to combat. That's a good reason to start thinking about an endgame sooner rather than later. The longer the Fed's easy-money policies go on, the greater the risk they will distort markets, create new bubbles and set the economy up for another fall. Fed Chairman Ben Bernanke has taken many bold and important actions, quantitative easing included, that averted a depression and propped up the economy during difficult times. He should be congratulated. But he's now left searching for a Goldilocks moment to reverse course, and such things are hard to divine. http://www.usatoday.com/story/opinion/2013/03/04/federal-reserve--quantitative-easing/1963539/ I can't help but think we just went through one bubble that was partially created through easy money policies, and now looking to solve it with another bubble inflator. I don't know, but that's the feeling I am getting. Link to comment Share on other sites More sharing options...
3rdnlng Posted March 5, 2013 Share Posted March 5, 2013 Easy money causing inflation in one of the only areas people can see a return on their investment. It's feeding itself. Link to comment Share on other sites More sharing options...
We Come In Peace Posted March 5, 2013 Share Posted March 5, 2013 I think there are some developments that have occurred on a corporate level that have been very advantageous to their well-being along with the stock market. However, the disconnect on a macro level to corporate earnings is alarming to say the least. I don't believe it's sustainable, that's just my personal view. I read an editorial in the USA TODAY, and it mirrors many of my same thoughts, even some that I've spoken about here on this site. http://www.usatoday....easing/1963539/ I can't help but think we just went through one bubble that was partially created through easy money policies, and now looking to solve it with another bubble inflator. I don't know, but that's the feeling I am getting. That's the game, isn't it? Artificially inflate the market, get Main Street's confidence up (be it with sub-prime mortgages convincing folks to buy homes they can't afford, junk bonds of the 80s, dot com stocks of the 90s) then pull the rug out from under them, causing a credit crunch and creating more debt-slaves for the banks to make incalculable amounts of money from, Happened in the '20s, '70s, '80s, '90s, and '00s. It'll happen again and again. I'm thinking somewhere around '17 this time around. Link to comment Share on other sites More sharing options...
meazza Posted March 5, 2013 Share Posted March 5, 2013 That's the game, isn't it? Artificially inflate the market, get Main Street's confidence up (be it with sub-prime mortgages convincing folks to buy homes they can't afford, junk bonds of the 80s, dot com stocks of the 90s) then pull the rug out from under them, causing a credit crunch and creating more debt-slaves for the banks to make incalculable amounts of money from, Happened in the '20s, '70s, '80s, '90s, and '00s. It'll happen again and again. I'm thinking somewhere around '17 this time around. Who pulls the rug exactly? Link to comment Share on other sites More sharing options...
We Come In Peace Posted March 5, 2013 Share Posted March 5, 2013 Who pulls the rug exactly? Economics (clearly) are not my forte. Any answer I would give would be wrong. It's the pattern that interests me because I don't have the vocabulary for the meat of the discussion. But if you believe in a new world order, the finger points to the folks who run the Fed and the banking system, the ones who have us all by the digital balls. Link to comment Share on other sites More sharing options...
Magox Posted March 5, 2013 Author Share Posted March 5, 2013 That's the game, isn't it? Artificially inflate the market, get Main Street's confidence up (be it with sub-prime mortgages convincing folks to buy homes they can't afford, junk bonds of the 80s, dot com stocks of the 90s) then pull the rug out from under them, causing a credit crunch and creating more debt-slaves for the banks to make incalculable amounts of money from, Happened in the '20s, '70s, '80s, '90s, and '00s. It'll happen again and again. I'm thinking somewhere around '17 this time around. I don't believe it's a sinister plot contrived from the fed, but i do agree that for the most part the end result is what you suggested. I just think it's a failed economic model that continues to be administered in large doses of the only policy prescription that they know of, which is to prime the pumps, make money cheaper and inflate their way back to prosperity. Link to comment Share on other sites More sharing options...
meazza Posted March 5, 2013 Share Posted March 5, 2013 (edited) I don't believe it's a sinister plot contrived from the fed, but i do agree that for the most part the end result is what you suggested. I just think it's a failed economic model that continues to be administered in large doses of the only policy prescription that they know of, which is to prime the pumps, make money cheaper and inflate their way back to prosperity. I'm actually listening to the entire video of Krugman vs Joe now (they can't find an actual economist to debate this troll?) Economics (clearly) are not my forte. Any answer I would give would be wrong. It's the pattern that interests me because I don't have the vocabulary for the meat of the discussion. But if you believe in a new world order, the finger points to the folks who run the Fed and the banking system, the ones who have us all by the digital balls. The end result is probably accurate but this is not a plot as you suggest. People are stupid and will often follow a herd mentality which leads to ups and down. No one notices the security exits until the fire breaks out and then it's too late. Edited March 5, 2013 by meazza Link to comment Share on other sites More sharing options...
Magox Posted March 5, 2013 Author Share Posted March 5, 2013 I'm actually listening to the entire video of Krugman vs Joe now (they can't find an actual economist to debate this troll?) They've been going at it for the past few months now, and it makes for good national debate. Link to comment Share on other sites More sharing options...
meazza Posted March 5, 2013 Share Posted March 5, 2013 They've been going at it for the past few months now, and it makes for good national debate. My favorite part Joe: you wrote about this in your book for 15 years!! Paul : oh thats a tired argument Link to comment Share on other sites More sharing options...
Magox Posted March 5, 2013 Author Share Posted March 5, 2013 My favorite part Joe: you wrote about this in your book for 15 years!! Paul : oh thats a tired argument John Podhoretz tweeted that “Paul Krugman says it’s ad hominem to quote columns of his back at him. I agree." Link to comment Share on other sites More sharing options...
Fan in San Diego Posted March 5, 2013 Share Posted March 5, 2013 I've had a stock guy predict that the DOW will go to 20K over the next few years and become the new baseline. He's convinced of it, me not so sure. Link to comment Share on other sites More sharing options...
We Come In Peace Posted March 5, 2013 Share Posted March 5, 2013 I don't believe it's a sinister plot contrived from the fed, but i do agree that for the most part the end result is what you suggested. I just think it's a failed economic model that continues to be administered in large doses of the only policy prescription that they know of, which is to prime the pumps, make money cheaper and inflate their way back to prosperity. Well that's only because you understand the economy better than I. You know how it goes, if someone don't understand something it must be magic! Or an evil plot designed to take over the world... either way. Crazy conspiracy aside, I have a couple questions you probably can help with. The "failed economic model" that causes this cycle still makes a certain portion of the population incredibly wealthy, does it not? The ones who know how to read the market better, the ones who pull out faster (the pull out method is only effective in business by the way), or what have you. These are the people who keep the model the same, aren't they? I mean, if it works for them, and they have all the money/influence/control, why would they change it? Or is that a false assumption? The end result is probably accurate but this is not a plot as you suggest. People are stupid and will often follow a herd mentality which leads to ups and down. No one notices the security exits until the fire breaks out and then it's too late. This is true as well. I still think the conspiracy element makes it more fun. Link to comment Share on other sites More sharing options...
OCinBuffalo Posted March 5, 2013 Share Posted March 5, 2013 Anybody think that Wall Street and investors bet on the fact that the sequester's forceed reduction of spending(not cuts), actually has a good chance of decreasing inflation? I see no reason why there isn't a correllation along the lines of: "they were forced to stop crazy spending increases, although perhaps symbolic, the Obama "culture of spending" is curtailed, thus there's a good chance the stocks I wanted to buy, are going up". Link to comment Share on other sites More sharing options...
B-Large Posted March 5, 2013 Share Posted March 5, 2013 Who pulls the rug exactly? The Racists.... its the !@#$ing Racists.... Link to comment Share on other sites More sharing options...
TakeYouToTasker Posted March 5, 2013 Share Posted March 5, 2013 It's a general equities bubble, once again made possible by cheap lines of credit. What happens when bubbles burst? Link to comment Share on other sites More sharing options...
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