# The Economy...



## tygrus (Mar 13, 2012)

For those who havent lived through a few recessions or cant remember them, I want to point out all signs are flashing we are entering another one.

There are lots of signs but the biggest one are the big company takeovers being announced, like AT&T. Every time there are a flurries of these, it is usually before a recession. It basically means these companies cant grow organically any more so they have to buy out weaker competitors. 

I would be careful...

http://www.cnbc.com/2016/10/26/davi...game-for-the-stock-market-and-us-economy.html


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## ian (Jun 18, 2016)

The numbers in Canada are not good.


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## james4beach (Nov 15, 2012)

And nobody has experienced entering a recession (and corp profit downturn) while interest rates were already 0%. Well, the Japanese have.

Before the 2007-2009 slowdown, the Federal Reserve policy rate was 5.25% so the central bank was able to fully cut 500 basis points to help stimulate. Today with rates at 0.40% USA and 0.50% Canada, there's nothing to cut.

Most of us saw this problem coming a mile away, ever since they slashed rates to zero. The problem is that central banks didn't have much choice ... you see, the moment they raise rates or normalize them, we would be back into full-on depression. The only thing keeping the entire western economy afloat is zero interest rates and record quantitative easing. As I've written about for years, the US/Canada/western economy is still in "emergency mode" and will be for the foreseeable future. It's not normal, it's not healthy.


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## tygrus (Mar 13, 2012)

james, thats why the fed is so desperate to raise the rates even just a little so they have some ammo when the storm comes. Seems they cant get there though, the storm keeps rolling on them. 

But this next one will be a doozy because we have never gone into a recession in a weaker position. It usually been after a boom.


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## james4beach (Nov 15, 2012)

lol, the Fed will never raise rates anywhere close to normalization, which would be at least 4%. It's just not going to happen.

The Fed has been totally irresponsible and reckless. The nature of the business cycle is to go through boom & bust and the Fed decided to stop that by throwing everything they have at it. Prices were plummeting in assets, and this was a healthy price discovery in progress. After the housing bubble and credit excesses *that the Fed caused*, Depression was inevitable -- the Fed's choice was either to let it play out, or to short circuit it and try to force asset prices higher again through stimulus.

The Fed chose the latter. They flooded the market with everything they had and stopped prices from declining. Notice that CAPE barely touched historical average for an instant in 2008.

It was NOT a normal bear market. It was halted and asset prices were dramatically inflated. The Fed put themselves in this position. They are totally addicted to blowing one bubble after the next, and don't want to see any price declines. If they keep thinking like this, we will have 30 years of zero interest rates just like Japan.


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## james4beach (Nov 15, 2012)

Personally, I think that the Federal Reserve (and all western central banks that follow the same play book) have destroyed western markets. They are ruined.

By constantly forcing new bubbles instead of letting markets go through healthy cycles, they have warped risk & reward fundamentals, ruined capital allocation incentives, and trained investors to be extreme risk-takers without even realizing it.

The CB addiction to manipulating asset prices makes a mockery of free markets. It's also an extremely dangerous climate to invest in, because everything we have now depends on central bank policy and stimulus.


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## zylon (Oct 27, 2010)

Christine Hughes always makes a lot of sense; to me anyway.



> *How Much Time Do We Have Before The Next Crisis?*
> 
> The yield curve dictates the US economic cycle and is the number one influencer of bear markets.
> At late stages of the cycle the yield curve collapses.
> The question is will there be QE before the next crisis given the divisiveness in US politics.


5-minute video
http://www.otterwoodcapital.com/blog/category/video/


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## james4beach (Nov 15, 2012)

When everything about investing comes down to "will there be more QE", you know there is a big problem.

What if the central bank leadership is replaced? What if the Fed decides there will be no more QE? Kiss your "blue chip" stocks goodbye ... kiss those "high quality dividend paying stocks" and "dividend aristocrats" goodbye... kiss your "low volatility funds" good bye. There is NOTHING without stimulus and quantitative easing.


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## Oldroe (Sep 18, 2009)

And all these smarts are from somebody that sat on the sidelines changing his diaper from 09 to 16.


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## james4beach (Nov 15, 2012)

Oldroe said:


> And all these smarts are from somebody that sat on the sidelines changing his diaper from 09 to 16.


Oldroe, just because five central banks working together bailed out your stock portfolio, doesn't make you a good investor -- it just makes you damned lucky. And I'm glad it worked for you. Now just pray that the central banks keep supporting your stocks as they have since 2009.


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## new dog (Jun 21, 2016)

James is right it is all a game and it will need to be stepped up in the future if that is possible. I have heard the term if you don't hold it you don't own it, which explains why art and real estate has gone up for example. Rich people realize that they need more then digits on a computer to measure their wealth. It could all collapse in as little as 48 hours if everything comes undone and much of what you physically own will be what you own. Obviously as long as the world allows the game to continue the Fed and central banks can continue to print up a storm and the game should continue.


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## mark0f0 (Oct 1, 2016)

I think the Fed's "mistakes" happened far earlier than in the past decade. Interest rates in the 1990s were far higher than they needed to be, given that there were so many deflationary trends in the economy. It was a mistake to raise rates in the 1990s to quell, at the time, the tech bubble. Central bankers saw full employment in 1999 (true full employment) and basically freaked out because people were actually able to start paying their loans back. So they raised rates and basically plunged the economy into a depression at the time which never really fully abated. Blaming much of it on 9/11. 

The Fed has had very little choice over the past decade other than to keep rates low. The economy simply didn't justify higher rates. There appears to be some inflationary pressure building in the US, so maybe they will need to raise rates there. But in Canada, its going to be low rates, if not ZIRP and NIRP for at least the next decade on the strength of Canada building so much industrial export capacity in the form of oil and gas upstream production.


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## Oldroe (Sep 18, 2009)

If Hillary gets elected the markets will get creamed.

I Dump gets elected it will still correct put you will need to be fast.

Either way you sit on that diaper again and lose. Just keep saying IF.


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## doctrine (Sep 30, 2011)

There are two big piles of money. Those that invested and continue to make money, and those who did not and continue to lose their money to inflation and wish/invent/hope for the next bear market. 

Corrections and bear markets are shorter and rarer as floods of money come online on every dip. There is a ton of people and money saying 'if only the market drops 20%..then I'll make my move". Meanwhile, the S&P hit another record high this year. And the TSX hit a record high, minus Valeant. Yawn.


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## james4beach (Nov 15, 2012)

I do not believe there is money on the sidelines. Who exactly has money? My office is full of guys in their 30s and 40s making well over 100k, and nobody here has any spare money. People are taking massive mortgages to buy homes. The same was true when I worked in Toronto -- nobody was investing. Not because they didn't want to, but because they had no money.

I went to a private school and a couple top universities. Most of my friends come from wealthy families and most of the people have professional jobs: lawyers, doctors, dentists, engineers. But among my close friends, I'm only aware of 2 or 3 people who actually have spare cash for investment purposes.

I think it's the opposite of money on the sidelines. The wave of baby boomers is entering retirement and will soon start drawing from their capital. That cohort will be withdrawing their equity for a long, long time. And there is no young money to replace it, because, well, the economy has been in the shitter since 2000.


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## ian (Jun 18, 2016)

Reports are that there is a lot of corporate money on the sidelines, stuck in retained earnings. Until there is a feeling of confidence the money will remain there instead of being used for business expansion and capital projects.

I think the Canadian economy is going to get a little worse before it gets better. Unemployment going the wrong way, as is private capital investment. Not a good situation.


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## Oldroe (Sep 18, 2009)

I worked in a factory. Have spare money. And the last thing I sold was 95% profit.

Maybe you should get your money back on that degree.


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## Pluto (Sep 12, 2013)

I don't think this one has triggered yet.

http://www.philosophicaleconomics.com/2016/02/uetrend/


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## londoncalling (Sep 17, 2011)

There is lots of money out there to be invested. Unfortunately the people you mention choose to spend their hard earned dollars on vacations, restaurants, new phones, tablets and automobiles. Compare the spending habits of gen x and late boomers to the early boomers and traditionals. Not sure when it was a right to take a hot holiday every winter. I am as guilty as the next person when it comes to spending. However, I do temper it with some restraint. No play unless you prepay. continue to save at a consistent rate and bought a home well within my affordability range. My wife and I could lose our jobs tomorrow and we would be ok. We would have to tighten our belts but we would not go broke in a couple of months or weeks. The economy mentioned in this thread is one about consumerism and continual spending not about creating real wealth. end rant

Cheers


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## Sm5 (Nov 2, 2014)

james4beach said:


> I do not believe there is money on the sidelines. Who exactly has money? My office is full of guys in their 30s and 40s making well over 100k, and nobody here has any spare money. People are taking massive mortgages to buy homes. The same was true when I worked in Toronto -- nobody was investing. Not because they didn't want to, but because they had no money.
> 
> I went to a private school and a couple top universities. Most of my friends come from wealthy families and most of the people have professional jobs: lawyers, doctors, dentists, engineers. But among my close friends, I'm only aware of 2 or 3 people who actually have spare cash for investment purposes.
> 
> I think it's the opposite of money on the sidelines. The wave of baby boomers is entering retirement and will soon start drawing from their capital. That cohort will be withdrawing their equity for a long, long time. And there is no young money to replace it, because, well, the economy has been in the shitter since 2000.


For the most part, the 'real money' isn't telegraphed. But it is there. It is also patient. Even in Alberta, there is a lot of sidelined capital waiting for opportunities to arise that will jump in fast on a correction.


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## fstamand (Mar 24, 2015)

New investor here. What is the best strategy in terms of protecting the gains from stocks in a downturn ? Progressive cash out ?


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## mordko (Jan 23, 2016)

...Stick to your asset allocations, stay invested, don't try to time the market.


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## Pluto (Sep 12, 2013)

The best protection is to buy quality at a fair price or better and hold on.


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## tygrus (Mar 13, 2012)

mordko said:


> ...Stick to your asset allocations, stay invested, don't try to time the market.


Thats suckers advice for the little guy. Institutional traders who know the market better than anyone dont stay invested in one thing or keep the same allocations. They are constantly changing their mix according to market conditions. The stock market is not a house, its changing constantly. You need to change with it.


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## Oldroe (Sep 18, 2009)

"Don't time the Market"

Worst advice ever wrote.


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## james4beach (Nov 15, 2012)

I agree that institutional investors are timing the market. That doesn't mean that us retail investors can pull it off, though.

Oldroe: what does your market timing say today? Is this a period to be long, or in cash?


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## Oldroe (Sep 18, 2009)

It says be ready for the US election. Know what you will buy and how much.

I really think people don't understand the math. If you say the P/E ratio on xxx is to high, you are timing the market. And all the other calculation and 6 month old charts you lokk at everyday are market/stock timers.

For your 100 RY shares you need to buy $21000.00 or 300 more.


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## BigMonkey (May 31, 2016)

I too believe that the market is overpriced and that the world is due for a correction (recession) for the prices to fall back to more reasonable levels. What is everybody doing? Have you guys been cashing out your investments or holding on to cash?


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## Oldroe (Sep 18, 2009)

I'm always prepared for a correction and just step it up a bit when opportunity is there.

If I'm wrong and no correction happens after the US election "So". If I'm right I timed the market (not perfect) but I got my money in good.

Then off I go looking for other opportunity's building my reserve.


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## Pluto (Sep 12, 2013)

Here is an article that might shed some light on this subject. 


http://www.marketwatch.com/story/wi...ake-up-the-stock-market-2016-10-27?link=MW_TD


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## CPA Candidate (Dec 15, 2013)

This is the best "a recession is coming" thread since the last one that was wrong. I look forward to the next one that is wrong.


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## new dog (Jun 21, 2016)

We are due for a recession and only continued massive Fed and central bank intervention and manipulation of everything will keep it away.


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## Pluto (Sep 12, 2013)

US U3 unemployment is reportedly under 5%. Stock indexes usually top out around the time unemployment gets to 5 or lower. But it is not always super precise in terms of timing as sometimes U3 is under 5% for a year or more before a bear market arrives. Essentially low unemployment marks the time central banks get confident to withdraw stimulus in order to contain inflation and wage inflation. Eventually the market cracks. 

http://www.cnbc.com/2016/11/04/best...shes-the-fed-toward-a-december-rate-hike.html


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