What's Up With Crypto? 3 3

[VKurtB]

On 9/5/2022 at 7:43 PM, World Colonial said:

What's your point?  I don't disagree.

I haven't lost a cent because I stayed out during the mania.  Others will call me a fool for not participating in the biggest bubble in human history, but I don't measure my financial performance by other's opinions.  I'll still be better off than most people by not participating.  They aren't paying my bills, are they?

Contrary to what you presumably believe, I also know that we've lived through the biggest financial mania in history which is going to be followed by the biggest bust.

Everybody in “hard money” belief has been predicting Armageddon seemingly forever. I keep waiting. The fact that it didn’t all go to h—- in 2008-2009 MIGHT MEAN it will never come. Gold is down 15% off recent highs. And THIS with high inflation! Money and credit simply may not matter anymore. The Fed simply makes up new tools as needed. Now we have a RIDICULOUS fiscal policy environment and STILL things hold together. Yes, it’s weird, but there it is. 
 

To put it succinctly, the boom bust cycle may have been rendered obsolete. The data sure looks that way. 

Edited September 6, 2022 by VKurtB

[GoldFinger1969]

On 9/5/2022 at 9:39 PM, VKurtB said:

Gold is down 15% off recent highs. And THIS with high inflation! Money and credit simply may not matter anymore. The Fed simply makes up new tools as needed. Now we have a RIDICULOUS fiscal policy environment and STILL things hold together. Yes, it’s weird, but there it is. 

Let me give you all some free advice on markets:  they will NOT do as you expect, as textbooks state they should, or as you want them to go.  They are resilient on the downside and will overshoot on the upside.  Staying long equities absent margin is the best long-term strategy to make $$$ and sleep at night.

On 9/5/2022 at 9:39 PM, VKurtB said:

To put it succinctly, the boom bust cycle may have been rendered obsolete. The data sure looks that way. 

That's what they were saying about Greenspan and Bernanke during the 1990's and 2000's.  Didn't turn out that way....

[Henri Charriere]

[I should like to exercise a little Threadmaster's Privilege here seeing I have the right audience all lined up.

Recently, I went to my local Chase Bank branch, spoke to a platform assistant who then presented me with his card.  I did not know until  now that this card, from a gentleman who on his card bills himself a "Relationship Banker," had a message (advertisement) printed on the back.  I would like to know what, if anything, do members make of the following:

Investment products and services offered through  J. P. Morgan Securities LLC (JPMS) Member FINRA and SIPC.  Insurance Agent of Chase Insurance Agency, Inc. (CIA)  Yes, there apparently is a another CIA!   JPMS and CIA are affiliates of JPMorgan Chase Bank, N.A.  Now, the curious part, boxed, capitalized and in bold font:

INVESTMENT AND INSURANCE PRODUCTS:  * NOT A DEPOSIT * NOT FDIC INSURED * NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY * NO BANK GUARANTEE * MAY LOSE VALUE.

My one and only takeaway, if I am reading this correctly, is:  why would anyone in possession of their full faculties, want to venture into this hornet's nest?  Is this a disclaimer of some sort which would allow them to say, "What part of this didn't you understand,"?  Or is there something else I am missing.  (Not cryp-to; simply cryp-tic) Anyone?]

 

 

Edited September 6, 2022 by Quintus Arrius
Providing closing bracket, as usual.

[GoldFinger1969]

On 9/5/2022 at 10:00 PM, Quintus Arrius said:

[I should like to exercise a little Threadmaster's Privilege here seeing I have the right audience all lined up.  Recently, I went to my local Chase Bank branch, spoke to a platform assistant who then presented me with his card.  I did not know until  now that this card, from a gentleman who on his card bills himself a "Relationship Banker," had a message (advertisement) printed on the back.  I would like to know what, if anything, do members make of the following: Investment products and services offered through  J. P. Morgan Securities LLC (JPMS) Member FINRA and SIPC.  Insurance Agent of Chase Insurance Agency, Inc. (CIA)  Yes, there apparently is a another CIA!   JPMS and CIA are affiliates of JPMorgan Chase Bank, N.A.  Now, the curious part, boxed, capitalized and in bold font: INVESTMENT AND INSURANCE PRODUCTS:  * NOT A DEPOSIT * NOT FDIC INSURED * NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY * NO BANK GUARANTEE * MAY LOSE VALUE. My one and only takeaway, if I am reading this correctly, is:  why would anyone in possession of their full faculties, want to venture into this hornet's nest?  Is this a disclaimer of some sort which would allow them to say, "What part of this didn't you understand,"?  Or is there something else I am missing.  (Not cryp-to; simply cryp-tic) Anyone?]

It's just someone who will offer investment products/securities (likely mutual funds) to more savvy bank depositors fed up with low rates. 

 

[VKurtB]

On 9/5/2022 at 9:04 PM, GoldFinger1969 said:

It's just someone who will offer investment products/securities (likely mutual funds) to more savvy bank depositors fed up with low rates. 

 

Yes, this. A guarantee against loss now brings LOWER returns than at any point of my lifetime. Only risk brings even a reasonable return. More risk? Higher average returns, but may also bring a negative return from time to time. Time horizon matters. Those who will need funds soon need to be careful of risk. Those who are young not only CAN handle more risk, they NEED TO. Low risk investing for young people is HORRIBLE for their futures. Just like high risk investing is horrible for me. And gold is just a ridiculously bad “investment” for nearly everyone, even William Devane. 
 

Seven figures of new resources at my age brings new decisions that have not been relevant before. 

Edited September 6, 2022 by VKurtB

[VKurtB]

On 9/5/2022 at 8:52 PM, GoldFinger1969 said:

Let me give you all some free advice on markets:  they will NOT do as you expect, as textbooks state they should, or as you want them to go.  They are resilient on the downside and will overshoot on the upside.  Staying long equities absent margin is the best long-term strategy to make $$$ and sleep at night.

That's what they were saying about Greenspan and Bernanke during the 1990's and 2000's.  Didn't turn out that way....

It took until the 2008-2009 period to repeal the link between money supply and inflation. We got asset bubbles without real inflation. AKA money supply does not matter - aggregate INCOME does! Paying people to not work is what causes inflation. 2020-2022 proved that. 

Edited September 6, 2022 by VKurtB

[GoldFinger1969]

On 9/5/2022 at 10:41 PM, VKurtB said:

Yes, this. A guarantee against loss now brings LOWER returns than at any point of my lifetime. Only risk brings even a reasonable return. More risk? Higher average returns, but may also bring a negative return from time to time. Time horizon matters. Those who will need funds soon need to be careful of risk. Those who are young not only CAN handle more risk, they NEED TO. Low risk investing for young people is HORRIBLE for their futures. Just like high risk investing is horrible for me. And gold is just a ridiculously bad “investment” for nearly everyone, even William Devane.  Seven figures of new resources at my age brings new decisions that have not been relevant before. 

Everyone has to do their own DD.   The 2-year Treasury bill finished Friday @ 3.40%.  Getting 7% over 2 years isn't great, but it's about 10x what the 2-year paid 12 months ago.

That's not bad for a classic risk-free investment. 

 

[zadok]

On 9/5/2022 at 8:43 PM, World Colonial said:

What's your point?  I don't disagree.

I haven't lost a cent because I stayed out during the mania.  Others will call me a fool for not participating in the biggest bubble in human history, but I don't measure my financial performance by other's opinions.  I'll still be better off than most people by not participating.  They aren't paying my bills, are they?

Contrary to what you presumably believe, I also know that we've lived through the biggest financial mania in history which is going to be followed by the biggest bust.

...makes a good case for owning tangible assets....

[zadok]

On 9/5/2022 at 9:39 PM, VKurtB said:

Everybody in “hard money” belief has been predicting Armageddon seemingly forever. I keep waiting. The fact that it didn’t all go to h—- in 2008-2009 MIGHT MEAN it will never come. Gold is down 15% off recent highs. And THIS with high inflation! Money and credit simply may not matter anymore. The Fed simply makes up new tools as needed. Now we have a RIDICULOUS fiscal policy environment and STILL things hold together. Yes, it’s weird, but there it is. 
 

To put it succinctly, the boom bust cycle may have been rendered obsolete. The data sure looks that way. 

...my take...if u dont like gold then dont buy it, if u have some n dont want it sell it to me, i buy gold virtually every day....

[zadok]

On 9/5/2022 at 10:00 PM, Quintus Arrius said:

[I should like to exercise a little Threadmaster's Privilege here seeing I have the right audience all lined up.

Recently, I went to my local Chase Bank branch, spoke to a platform assistant who then presented me with his card.  I did not know until  now that this card, from a gentleman who on his card bills himself a "Relationship Banker," had a message (advertisement) printed on the back.  I would like to know what, if anything, do members make of the following:

Investment products and services offered through  J. P. Morgan Securities LLC (JPMS) Member FINRA and SIPC.  Insurance Agent of Chase Insurance Agency, Inc. (CIA)  Yes, there apparently is a another CIA!   JPMS and CIA are affiliates of JPMorgan Chase Bank, N.A.  Now, the curious part, boxed, capitalized and in bold font:

INVESTMENT AND INSURANCE PRODUCTS:  * NOT A DEPOSIT * NOT FDIC INSURED * NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY * NO BANK GUARANTEE * MAY LOSE VALUE.

My one and only takeaway, if I am reading this correctly, is:  why would anyone in possession of their full faculties, want to venture into this hornet's nest?  Is this a disclaimer of some sort which would allow them to say, "What part of this didn't you understand,"?  Or is there something else I am missing.  (Not cryp-to; simply cryp-tic) Anyone?]

 

 

...just saying if u want to make more money on ur money take some risk, if not just keep it in a nice secure place...fyi postal money orders pay no interest or dividends just dead money....

[zadok]

On 9/5/2022 at 10:57 PM, VKurtB said:

It took until the 2008-2009 period to repeal the link between money supply and inflation. We got asset bubbles without real inflation. AKA money supply does not matter - aggregate INCOME does! Paying people to not work is what causes inflation. 2020-2022 proved that. 

...dont put me in coach just pay my tuition while i sit on the bench...recipe for internal rot n no self esteem...just like the student loan garbage....

[zadok]

On 9/5/2022 at 11:02 PM, GoldFinger1969 said:

Everyone has to do their own DD.   The 2-year Treasury bill finished Friday @ 3.40%.  Getting 7% over 2 years isn't great, but it's about 10x what the 2-year paid 12 months ago.

That's not bad for a classic risk-free investment. 

 

...i guess if u like being classic...if my annual return was only 3.4% id consider it a year of failure....

[GoldFinger1969]

On 9/6/2022 at 9:10 AM, zadok said:

...makes a good case for owning tangible assets....

Over time,  REAL financial assets are the only assets capable of generating positive, inflation-adjusted returns over long measuring periods.  Tangible assets, collectibles, and commodities have their years or decades...but then they get too high...correct...don't pay dividends or income....and you go 10-15 years making nothing.

That is NOT the case with stocks or bonds.

[GoldFinger1969]

On 9/6/2022 at 9:21 AM, zadok said:

...i guess if u like being classic...if my annual return was only 3.4% id consider it a year of failure....

Without taking any risk, it's not bad.  10-year Treasury today is at 3.33%.....that means you'll get close to 40% over 10 years with NO RISK.

Good investments for some -- not ALL -- of one's portfolio. 

[zadok]

On 9/6/2022 at 11:37 AM, GoldFinger1969 said:

Over time,  REAL financial assets are the only assets capable of generating positive, inflation-adjusted returns over long measuring periods.  Tangible assets, collectibles, and commodities have their years or decades...but then they get too high...correct...don't pay dividends or income....and you go 10-15 years making nothing.

That is NOT the case with stocks or bonds.

...and yet over the past 50 years my tangible assets including precious metals have outperformed my paper investments by 400%...n i have averaged 18% on my paper during that time, some of my paper ive owned 50+ years, true the dividends have surpassed the cost by 300+% but the gold i bought same time has generated more money....

[World Colonial]

On 9/5/2022 at 9:39 PM, VKurtB said:

Everybody in “hard money” belief has been predicting Armageddon seemingly forever. I keep waiting. The fact that it didn’t all go to h—- in 2008-2009 MIGHT MEAN it will never come. Gold is down 15% off recent highs. And THIS with high inflation!

The only reason I can see for this belief is due to what you told me before, that all precedent is irrelevant.  History isn't deterministic of future events but it's indicative of how people actually act.  You told me you don't believe history is relevant.  I'm telling you this is a very long cycle.

Also, I haven't predicted "Armageddon".  That's a straw man.  My prediction is that the majority of Americans are destined to become poorer or a lot poorer over the indefinite future.

On 9/5/2022 at 9:39 PM, VKurtB said:

And THIS with high inflation! Money and credit simply may not matter anymore. The Fed simply makes up new tools as needed. Now we have a RIDICULOUS fiscal policy environment and STILL things hold together. Yes, it’s weird, but there it is. 
 

To put it succinctly, the boom bust cycle may have been rendered obsolete. The data sure looks that way. 

The only reason I can see for this belief is your concurrent belief in what I call the economic priesthood.  Practically everyone shares this version of religion because that's what it is. 

I'm telling you that the only reason for their apparent success is manic psychology. It's the only reason why QE is possible, especially for this long and to this scale.  It's also the only reason deficit spending and government debts of this magnitude and duration are possible.  

There is no wizard behind the curtain in economics or central banking any more than there is in "OZ".  There is also never something for nothing, ever.  If you disagree you disagree, but I know it's nonsense.  Central banks and governments didn't miraculously discover some "deus ex machina" to magically generate prosperity in perpetuity through "printing" (currency debasement), borrowing from the future (deficit spending), and pretending that risk has been eliminated because of politically motivated government guarantees (moral hazard).

[World Colonial]

On 9/5/2022 at 10:41 PM, VKurtB said:

Yes, this. A guarantee against loss now brings LOWER returns than at any point of my lifetime. Only risk brings even a reasonable return. More risk? Higher average returns, but may also bring a negative return from time to time. Time horizon matters. Those who will need funds soon need to be careful of risk. 

The real reason future returns from current market levels across all major asset classes will be "low" is because the real economy isn't actually productive enough to provide anything more, outside of a mania with perpetually increasing debt which isn't wealth.

On 9/5/2022 at 10:41 PM, VKurtB said:

Time horizon matters. Those who will need funds soon need to be careful of risk. Those who are young not only CAN handle more risk, they NEED TO. Low risk investing for young people is HORRIBLE for their futures. Just like high risk investing is horrible for me.

There is a time to buy and a time to sell.  There is a time to short and a time to cover.  There is a time to hold and a time to avoid.  Every position has its place under the sun, at one time or another.  

It's not just time horizon or age.  It's also valuation.  Valuation has mostly been completely disregarded over the last quarter century.  That's what makes recent experience a mania.

Most supposed "investing" is also speculation.  That's why I use "investing" in quotes most of the time.  It's a rationalization to take on more risk and now mostly reckless risk by somehow convincing yourself that maniacally relatively overpriced markets and "assets" are somehow "low" risk.

If I ask anyone the difference between most supposed "investing" and speculation, the only distinction they can usually give me is the holding period which isn't one at all.  It's arbitrary, as under both any profit is disproportionately or entirely the result of changes in the market price with nothing of any value created.  It's more Wall Street BS marketing.

On 9/5/2022 at 10:41 PM, VKurtB said:

And gold is just a ridiculously bad “investment” for nearly everyone, even William Devane. 

It depends upon the price.  It doesn't matter that gold just sits there as Buffet states, as this isn't tangibly different from owning serial money losing cash burn machine companies or ridiculously overpriced (supposed) blue chip companies that pay immaterial dividends and have garbage balance sheets to go with it.  That's most of the (US) stock market now and recently.

I don't think gold is a good buy at current prices.  It isn't the worst but that doesn't change it's still historically relatively expensive.

Edited September 6, 2022 by World Colonial

[VKurtB]

On 9/6/2022 at 4:35 PM, World Colonial said:

The real reason future returns from current market levels across all major asset classes will be "low" is because the real economy isn't actually productive enough to provide anything more, outside of a mania with perpetually increasing debt which isn't wealth.

There is a time to buy and a time to sell.  There is a time to short and a time to cover.  There is a time to hold and a time to avoid.  Every position has its place under the sun, at one time or another.  

It's not just time horizon or age.  It's also valuation.  Valuation has mostly been completely disregarded over the last quarter century.  That's what makes recent experience a mania.

Most supposed "investing" is also speculation.  That's why I use "investing" in quotes most of the time.  It's a rationalization to take on more risk and now mostly reckless risk by somehow convincing yourself that maniacally relatively overpriced markets and "assets" are somehow "low" risk.

If I ask anyone the difference between most supposed "investing" and speculation, the only distinction they can usually give me is the holding period which isn't one at all.  It's arbitrary, as under both any profit is disproportionately or entirely the result of changes in the market price with nothing of any value created.  It's more Wall Street BS marketing.

It depends upon the price.  It doesn't matter that gold just sits there as Buffet states, as this isn't tangibly different from owning serial money losing cash burn machine companies or ridiculously overpriced (supposed) blue chip companies that pay immaterial dividends and have garbage balance sheets to go with it.  That's most of the (US) stock market now and recently.

I don't think gold is a good buy at current prices.  It isn't the worst but that doesn't change it's still historically relatively expensive.

Are equities really so high based on PE’s? I honestly haven’t had cause to check much lately. The last I heard, PE’s were fairly normal. But I realize that at some point, dividends can matter more than earnings per se. 

[World Colonial]

On 9/6/2022 at 11:39 AM, GoldFinger1969 said:

Without taking any risk, it's not bad.  10-year Treasury today is at 3.33%.....that means you'll get close to 40% over 10 years with NO RISK.

Good investments for some -- not ALL -- of one's portfolio. 

There is risk, the depreciating currency.

My position is that the bond bull market which started in 1981 ended in 2020.  The prior bear market lasted from somewhere in the 40's (1946 I think) to 1981 during which time interest rates (long-term UST) rose seven fold.  It wasn't that big of a problem last time because debt levels were so much lower.  It's going to be a much bigger problem this time because the actual fundamentals now (including debt levels) are actually absolutely awful. 

It just never appears so at or near a market peak.  What most people call the negative fundamentals will become a lot more evident during the rising rate environment or at the peak.

[World Colonial]

On 9/6/2022 at 5:43 PM, VKurtB said:

Are equities really so high based on PE’s? I honestly haven’t had cause to check much lately. The last I heard, PE’s were fairly normal. But I realize that at some point, dividends can matter more than earnings per se. 

The P/E ratio is a poor value measurement.

First, it's a lagging indicator because stock prices always move before earnings, up or down.

Second, earnings aren't even real money.  You can't spend it.  No one can spend it.  It's an accounting number and nothing more with most of it permanently buried in the balance sheet.  The dividend is actual cash in your pocket and most payouts are very poor historically.  It only appears competitive due to the abnormal rate environment but that's changing fast now.  In a long-term economic uptrend, rising payouts can mostly or entirely negate this but someone would have to be wildly optimistic to believe that's where we are now.

Also look at the quality of corporate balance sheets.  For anyone who is going to ignore valuations and hold anyway, at least make sure that the company can sustain the dividend during bad times.  The leverage most larger companies have now better supports they can't, unless the recession is very modest and brief.  In 2008, stock prices crashed (the S&P fell 58%), then earnings crashed, and then dividends were cut or eliminated.  All in a few months. The fundamentals are far worse now versus 2008 and balance sheets are much weaker.

Third, earnings are also inflated for a variety of reasons.  Some of it is due to increased efficiency but much of it is something else.  The extended low interest rate environment has artificially reduced interest expense.  This won't change quickly but it's going to be a headwind for the indefinite future, a long time.  Financial engineering (mostly in the form of stock buybacks) has inflated EPS while simultaneously gutting corporate balance sheets. The credit mania has inflated GDP and with it, corporate earnings by enabling the everyone to consume above their means.  If globalization partly reverses, this will reduce labor arbitrage.

[World Colonial]

On 9/6/2022 at 11:37 AM, GoldFinger1969 said:

Over time,  REAL financial assets are the only assets capable of generating positive, inflation-adjusted returns over long measuring periods.  Tangible assets, collectibles, and commodities have their years or decades...but then they get too high...correct...don't pay dividends or income....and you go 10-15 years making nothing.

That is NOT the case with stocks or bonds.

For stocks it depends upon what you owned.  There were 10 year periods from 1966 (or earlier) and 1982 when returns were zero or negative, definitely measured in purchasing power which is what ultimately matters.  This was during a mostly expanding economy, measured by GDP.

Unless you believe the interest rate cycle has not bottomed (which I do), I can't imagine a worse time to buy bonds than now or recently.  It's better now versus 2020 but only marginally.  Due to relative overvaluation in all major asset classes, I expect short-term higher quality debt (like ST UST) to outperform, but still with a likely negative real return.

[VKurtB]

On 9/6/2022 at 5:00 PM, World Colonial said:

Second, earnings aren't even real money.  You can't spend it.  No one can spend it. 

SOMEBODY can spend earnings, for SOMETHING, whether it’s by a stockholder from a dividend, or the company itself for growth of the core business, or even M&A. Earnings are highly relevant, to ALMOST the exclusion of any other metric. 
 

And by the way, holding debt is real wealth. Ask the holder of my mortgage. I didn’t hold a gun to their head to get a ridiculously low 30-year fixed mortgage rate. It’s a lower rate than my parents ever got in the 50’s to the 80’s. 

Edited September 6, 2022 by VKurtB

[GoldFinger1969]

On 9/6/2022 at 1:25 PM, zadok said:

...and yet over the past 50 years my tangible assets including precious metals have outperformed my paper investments by 400%...n i have averaged 18% on my paper during that time, some of my paper ive owned 50+ years, true the dividends have surpassed the cost by 300+% but the gold i bought same time has generated more money....

The key is 50 years.....and the returns in recent years/decades are certainly LESS than what you gained in the 1970's alone.  Right ?

[GoldFinger1969]

On 9/6/2022 at 5:43 PM, VKurtB said:

Are equities really so high based on PE’s? I honestly haven’t had cause to check much lately. The last I heard, PE’s were fairly normal. But I realize that at some point, dividends can matter more than earnings per se. 

Check out Pages 4, 5, and 10 among others:

https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/?gclid=Cj0KCQjw39uYBhCLARIsAD_SzMT2f3J3fqg0zxdCboA2QMT1RY8tMpzKum2Wfv3EGKLhyrjBhmS_Lz8aAqCvEALw_wcB&gclsrc=aw.ds

The big problem is that growth stocks are expensive and they comprise the bulk of the S&P 500 and the Top 50 stocks by market capitalization.

Edited September 7, 2022 by GoldFinger1969

[GoldFinger1969]

On 9/6/2022 at 5:44 PM, World Colonial said:

There is risk, the depreciating currency.

DXY dollar index at multi-year highs; dollar at 24-year highs vs. Japanese Yen.   Remember when everyone said Japan and their managed economy was the wave of the future, circa 1980 ?  They've been stuck in quicksand for 30 years now. 

On 9/6/2022 at 5:44 PM, World Colonial said:

My position is that the bond bull market which started in 1981 ended in 2020.  The prior bear market lasted from somewhere in the 40's (1946 I think) to 1981 during which time interest rates (long-term UST) rose seven fold.  It wasn't that big of a problem last time because debt levels were so much lower.  It's going to be a much bigger problem this time because the actual fundamentals now (including debt levels) are actually absolutely awful. 

It just never appears so at or near a market peak.  What most people call the negative fundamentals will become a lot more evident during the rising rate environment or at the peak.

I agree we (probably) can't go lower unless we're going to have negative interest rates, something the Fed doesn't want (banks, money market funds, pension funds, etc.).  But the circumstances that led long-term Treasuries to go from 2% in April 1946 to 15% in September 1981 are not present today.

You had:  trade barriers (Cold War, China/India closed).....currency problems (leading to floating rates in 1973)....Treasury vs. Fed conflicts (largely addressed in 1951 Accord) that persisted with control of dollar vs. open market operations.....inflation going from 2% to 5% to 12%.  These are NOT likely to persist for years or decades.

A single-minded focus on debt is misguided, IMO.  As I have said before, it took Greece -- a 3rd-rate, tourist-dependent Socialist economy -- nearly 30 years to implode.  A global financial superpower which is the best debt-laden house in a debt neighborhood is not likely to have the problems you believe.

Doom & Gloom work for a short period of time -- but not in the long run, WC !!  

 

Edited September 7, 2022 by GoldFinger1969

[GoldFinger1969]

On 9/6/2022 at 6:00 PM, World Colonial said:

The P/E ratio is a poor value measurement.

First, it's a lagging indicator because stock prices always move before earnings, up or down.

Second, earnings aren't even real money.  You can't spend it.  No one can spend it.  It's an accounting number and nothing more with most of it permanently buried in the balance sheet.  The dividend is actual cash in your pocket and most payouts are very poor historically.  It only appears competitive due to the abnormal rate environment but that's changing fast now.  In a long-term economic uptrend, rising payouts can mostly or entirely negate this but someone would have to be wildly optimistic to believe that's where we are now.

Also look at the quality of corporate balance sheets.  For anyone who is going to ignore valuations and hold anyway, at least make sure that the company can sustain the dividend during bad times.  The leverage most larger companies have now better supports they can't, unless the recession is very modest and brief.  In 2008, stock prices crashed (the S&P fell 58%), then earnings crashed, and then dividends were cut or eliminated.  All in a few months. The fundamentals are far worse now versus 2008 and balance sheets are much weaker.

Third, earnings are also inflated for a variety of reasons.  Some of it is due to increased efficiency but much of it is something else.  The extended low interest rate environment has artificially reduced interest expense.  This won't change quickly but it's going to be a headwind for the indefinite future, a long time.  Financial engineering (mostly in the form of stock buybacks) has inflated EPS while simultaneously gutting corporate balance sheets. The credit mania has inflated GDP and with it, corporate earnings by enabling the everyone to consume above their means.  If globalization partly reverses, this will reduce labor arbitrage.

The quality of U.S. earnings is very solid.  You can state that earnings will collapse, but the quality is A-1.  

Leverage in U.S. corporations is very modest compared to past cycles.   Banks, for an example, were levered at about 25:1 before 2008.  Today, they are leveraged about 10x.  Capital ratios across the spectrum are 2-4x HIGHER than 2008's.  It's like comparing a straw house to a brick house with the economy the Big Bad Wolf. 

Check out the JP Morgan Guide Book I listed above for more household and corporate data points.

[GoldFinger1969]

On 9/6/2022 at 6:09 PM, World Colonial said:

For stocks it depends upon what you owned.  There were 10 year periods from 1966 (or earlier) and 1982 when returns were zero or negative, definitely measured in purchasing power which is what ultimately matters.  This was during a mostly expanding economy, measured by GDP.

Not ROLLING 10-year periods, certainly not 20 or 30-year rolling periods.  I'm willing to bet even a single 10-year period may have eeked out a small nominal return.  But perhaps negative in real terms, yes.

 

"Unless you believe the interest rate cycle has not bottomed (which I do), I can't imagine a worse time to buy bonds than now or recently.  It's better now versus 2020 but only marginally.  Due to relative overvaluation in all major asset classes, I expect short-term higher quality debt (like ST UST) to outperform, but still with a likely negative real return."

Mathematically, the lower durations and higher coupons of bonds will make it more difficult for future rate rises to generate losses UNLESS they are larger and larger as was the case in the 1970's and early-1980's.  I agree.....short-term, high-quality corporate and Treasuries going forward are a good place to invest/hide.

Edited September 7, 2022 by GoldFinger1969

[World Colonial]

On 9/6/2022 at 6:37 PM, VKurtB said:

SOMEBODY can spend earnings, for SOMETHING, whether it’s by a stockholder from a dividend, or the company itself for growth of the core business, or even M&A. Earnings are highly relevant, to ALMOST the exclusion of any other metric. 

Not the shareholder.  They never see it unless it's paid out as dividends.

As for growth there is no little if any correlation with earnings in the recent past, like much of this century.

Earnings are an accounting abstraction to practically every individual, as they have absolutely no ability to monetize it.  They can sell their shares, but any appreciation is mostly or entirely independent or any supposed growth.

[World Colonial]

On 9/7/2022 at 3:07 AM, GoldFinger1969 said:

DXY dollar index at multi-year highs; dollar at 24-year highs vs. Japanese Yen.   Remember when everyone said Japan and their managed economy was the wave of the future, circa 1980 ?  They've been stuck in quicksand for 30 years now. 

I'm not referring to the FX rate of the USD, but it's domestic purchasing power.

On 9/7/2022 at 3:07 AM, GoldFinger1969 said:

DXY dollar index at multi-year highs; dollar at 24-year highs vs. Japanese Yen.   Remember when everyone said Japan and their managed economy was the wave of the future, circa 1980 ?  They've been stuck in quicksand for 30 years now. 

I agree we (probably) can't go lower unless we're going to have negative interest rates, something the Fed doesn't want (banks, money market funds, pension funds, etc.).  But the circumstances that led long-term Treasuries to go from 2% in April 1946 to 15% in September 1981 are not present today.

You had:  trade barriers (Cold War, China/India closed).....currency problems (leading to floating rates in 1973)....Treasury vs. Fed conflicts (largely addressed in 1951 Accord) that persisted with control of dollar vs. open market operations.....inflation going from 2% to 5% to 12%.  These are NOT likely to persist for years or decades.

You are looking in the rear-view mirror, just like everyone who looks at the so-called fundamentals.

Of course, at or near a market peak, the so-called fundamentals look good to most people.  How else do you think we got the combination of the lowest credit quality and lowest credit standards in human history simultaneously with the lowest interest rates in history?  It's also why we have a stock mania and real estate bubble.

If you go back to 1981 at the peak of the interest rate cycle, either no one or virtually no one would have foreseen that interest rates would be so low now and recently with such actually awful credit quality.

On 9/7/2022 at 3:07 AM, GoldFinger1969 said:

A single-minded focus on debt is misguided, IMO.  As I have said before, it took Greece -- a 3rd-rate, tourist-dependent Socialist economy -- nearly 30 years to implode.  A global financial superpower which is the best debt-laden house in a debt neighborhood is not likely to have the problems you believe.

First, the primary basis of my position isn't on debt.  Current debt is a symptom of extended social and economic decay.  You and practically everyone else miss this entirely.  The actual state of country longer-term is nowhere near as favorable as you imply.  It's poor to very poor.

Second, comparing to Greece makes no sense.  I'm aware Greece is in worse shape, but your inference is that the starting point for the US now is favorable when it isn't.  

Predicting that most Americans are going to become poorer or a lot poorer over the indefinite future isn't "doom and gloom", it's completely realistic. A turn in the long-term credit cycle (in 2020) and an end of the asset mania are more than sufficient to result in this outcome.

Believing that any society can live above its means as the US has for decades and then expecting more of the same indefinitely is nonsensical.  That's the consensus.

Go look at public data published by FRED.  It's not mine.  Real median household income and net worth has essentially flatlined since the late 90's.  This is an entire generation and probably the worst performance in US history over a comparable time period.  It's also occurred during a mostly expanding economy, except for short periods surrounding 9/11, the GFC, and COVID.

It took a 5X increase in the national debt, an 8X increase in the FRB's balance sheet, the lowest interest rates in history, and the biggest asset mania in history to achieve this pathetic economic performance.  

[World Colonial]

On 9/6/2022 at 6:37 PM, VKurtB said:

And by the way, holding debt is real wealth. Ask the holder of my mortgage. I didn’t hold a gun to their head to get a ridiculously low 30-year fixed mortgage rate. It’s a lower rate than my parents ever got in the 50’s to the 80’s. 

It's wealth to the individual, not the economy.  This is something else almost everyone misses entirely.

You or I as individuals are wealthier when our bank balance or asset portfolio increases in price.  The economy in the aggregate isn't.