# Fed bubble: when this ends it's gonna get ugly



## james4beach (Nov 15, 2012)

Zerohedge has an article in which Starwood Capital's Barry Sternlicht warns about Federal Reserve-induced asset inflation (probably meaning the stock market) as it's pretty well established now that the S&P 500 directly correlates with the Federal Reserve's QE stimulus program. He believes that volatility can quickly return when the psychology of the current bubble breaks. I agree with him.
http://www.zerohedge.com/news/2013-...-cash-because-they-know-when-it-ends-its-gonn

He says: "you know when this ends, it's gonna get ugly."


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## fatcat (Nov 11, 2009)

maybe ... maybe not

your confirmation bias is showing james

i give the guy an f for _unoriginality_

i'm gonna invent a new game called "i'm feeling bearishly lucky", you click a button and a random prediction of financial doom will pop up ..

marc faber, eric sprott, jim rogers ... these guys litter the landscape

james, what steps are you taking, what investments are you making in the event that you are wrong ?

i'm curious


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## My Own Advisor (Sep 24, 2012)

"i'm gonna invent a new game called "i'm feeling bearishly lucky", you click a button and a random prediction of financial doom will pop up .."

Funny.

I know this question was addressed to james, but I'll provide my answer: I continue to save money where I can and when I have enough money (>$2,000 to invest), I'll buy more VTI and some U.S. stocks where I see some value. Looking at Realty Income (O:US) now.

They (financial folks) can forecast all they want but I haven't met anyone that can predict the future (including what is going to happen tomorrow) with any accuracy. Unless of course, I know the wrong people.....which is entirely possible....


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## FrugalTrader (Oct 13, 2008)

Volatility can be a good thing. It's hard to find a deal on the SP500 right now.


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## Oldroe (Sep 18, 2009)

I hope he is right because this market is just boring.


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## blin10 (Jun 27, 2011)

"when it ends" so when will it end ? next year or in 10 years ?


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## james4beach (Nov 15, 2012)

fatcat said:


> james, what steps are you taking, what investments are you making in the event that you are wrong ?


I don't need to do anything. I already have significant exposure to stocks and also some precious metals. I'm playing the same crazy Fed-bubble-chasing game all the rest of you are.

What I'm _not_ doing is adding more exposure


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## james4beach (Nov 15, 2012)

blin10 said:


> "when it ends" so when will it end ? next year or in 10 years ?


Who knows? The mainstream thinking is that this can persist for the rest of your life. Personally I disagree


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## atrp2biz (Sep 22, 2010)

How does that saying go? Something about 'irrational' and 'solvency'.


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## HaroldCrump (Jun 10, 2009)

james4beach said:


> I already have significant exposure to stocks


You have _significant _exposure to stocks?
Weren't you 95% GICs and HISA?


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## james4beach (Nov 15, 2012)

Total asset view, I'm 89% in cash/GIC/bonds/savings but a chunk of that is capital segregated for business & real estate

Looking at available (investable) money, I'm 48% in fixed income and 52% in equities & precious metals. More or less a 'balanced fund'


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## Oldroe (Sep 18, 2009)

You predicted the finical crisis in 2007 and never made a dime.

You missed that quad return on banks and now I'm to worry about your opinion. Sorry


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## james4beach (Nov 15, 2012)

Where did you get the idea I never made a dime on the financial crisis? You're full of assumptions Oldroe

My investments made money in 1999-2001 and I also made money in 2007-2008. Did you?


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## andrewf (Mar 1, 2010)

Most of my share buying has been in ex-US foreign equities and Canada. The US is a bit rich and I'm satisfied with my existing exposure.


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## Oldroe (Sep 18, 2009)

yes I did very thank you. I still wouldn't tell anybody I missed it. Because they remember. Like I've told you fear mongers are just that. Keep hiding keep dredging up people that nobody has heard off and keep losing.

I fully support you because I just keep making money.


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## james4beach (Nov 15, 2012)

You know Oldroe, people told me I was a paranoid nut in 2006 too when I said the market was overvalued


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## Toronto.gal (Jan 8, 2010)

james4beach said:


> My investments made money in 1999-2001...


I think you're in your early 30's, so it means you were investing from an early age, and if succeeding from then, why such a bear now? Did u get wiped out in 08/09?


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## techcrium (Mar 8, 2013)

Toronto.gal said:


> I think you're in your early 30's, so it means you were investing from an early age, and if succeeding from then, why such a bear now? Did u get wiped out in 08/09?


If he is in his 30s now, then he was very early 20s in 1999-2000. I doubt he would have had to foresight to see the dotcom crash. As most financial analysts didn't see the dot com crash coming. Nearly no one saw the dot com crash.

If he did see something wrong with the stock market in his 20s, he should be a billionaire investor with those skills in his 30s and wouldn't be posting here...

Therefore, we can conclude that he is fibbing. Logic dictates that chances are that he didn't actually make any money.


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## james4beach (Nov 15, 2012)

I started running a business in the late 90s and was investing by the late 90s. Luckily I didn't have any stocks, but it was mostly accidental... and very lucky.

As I wrote before: "My investments made money in 1999-2001"


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## techcrium (Mar 8, 2013)

During the dotcom boom, there were very FEW bears.

Think about it, unemployment was at 4%, your stock portfolio doubled every day, you are getting huge bonuses year end.

What incentive do you have to be a bear? There were none. No one was a bear, and most people I know lost money in the stock market.


If you were a financial bear at the time, you must have massive foresight at age 22-24, which means you would be a billionaire now.


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## james4beach (Nov 15, 2012)

Toronto.gal said:


> I think you're in your early 30's, so it means you were investing from an early age, and if succeeding from then, why such a bear now? Did u get wiped out in 08/09?


Yes I was investing from an early age, mostly in fixed income. Why am I a bear?

1. The moment I graduate high school, the stock market crashes in 2000
2. My bonds & GICs keep making money... so I learn, wow, stocks are a bad idea.
3. The market recovers and we get the US housing bubble
4. The stock market crashes again in 2008 and practically destroys the USA
5. So I learn yet again, wow, stocks are a bad idea

Makes sense right? I started at a young age in the 90s, consistently in fixed income, and consistently saw my money grow. I have been investing through two vicious stock market crashes... and made money through them, because I wasn't exposed long to stocks.

I'm a bear because I've seen that the risk/reward prospect of stocks is pretty crappy


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## james4beach (Nov 15, 2012)

techcrium said:


> If you were a financial bear at the time, you must have massive foresight at age 22-24, *which means you would be a billionaire now*.


That's faulty logic. Yes I had foresight and yes I came out ahead. But no, it didn't make me a billionaire.

As I wrote, my lack of stock exposure in the late 90s was a lucky accident. And in the 2005 ish zone, I deliberately avoided stocks and knew things were overvalued. Along the way I lost some money by short selling stocks during the rising market of 2005-2006.

You seem to assume that all investors operate with aggressive leveraged strategies. Not true. There is nothing that I'm doing with my capital that would make me a billionaire, even if I was right every step along the way.


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## james4beach (Nov 15, 2012)

You know, I would think that you all would be grateful to hear the experience from someone such as myself who successfully navigated two back-to-back market crashes without pain.

I'm basically telling you that I avoided stocks and it worked out pretty well for me. What's so hard to understand here?


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## james4beach (Nov 15, 2012)

Toronto.gal and techcrium (with 4 posts) I think I may have figured out the point of confusion.

When I say *investing* I include in that definition cash, savings accounts, GICs and bonds. I have been investing for a long time, and made money through 2000 and 2008... because my fixed income investments had positive returns.

You know, savings & fixed income are perfectly valid investments even if you totally forget about stocks.

I didn't have enormously high returns in fixed income (obviously). Does this clarify things for you? But I did have positive returns, unlike most people.

Perhaps when you hear "investing" you think it must mean stocks. I did dabble a bit in stocks, both long and short, but my investments have been mostly fixed income (as they still are today). I gave you the breakdown of my current exposure.


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## fatcat (Nov 11, 2009)

james4beach said:


> You know, I would think that you all would be grateful to hear the experience from someone such as myself who successfully navigated two back-to-back market crashes without pain.
> 
> I'm basically telling you that I avoided stocks and it worked out pretty well for me. What's so hard to understand here?


investing is a long game james, its how much you have at the end that counts ... your asset allocation pretty much requires that the stock market go tits up for the next 35+ years if you want to retire at say 70 and come out ahead on your current plan

for the life of me i cannot understand why a 30 something person would have so much in fixed income with a 35 year time horizon

all you need is a 1% tick up in inflation and you are basically gonna start losing money at current gic rates


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## james4beach (Nov 15, 2012)

fatcat, looking back at when I started (late 90s) through to today, my total returns in fixed income have been fine in these ~ 16 years. So far, I have not forfeited any meaningful returns versus stocks.

Until today, my fixed income has not hurt me. But I agree that's the past.

And I agree that with all the years ahead of me, I do need stock exposure. Yes if inflation ticks up, I'll be in trouble. I do have some stock exposure already.

I'm not saying that I have figured out everything. I've navigated my first 16 years well, and am proud of it. What to do going forward? Difficult... I'm in the same boat as everyone else.


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## Eder (Feb 16, 2011)

I'm pretty sure Tyler whatever they are at ZeroHedge and all of their followers are broke unless of course they are like televangelists...preach one thing practice another. Its hard to be wrong every time 4 years in a row but so far they are pulling it off. I predict Tyler will be right for 6-10 months some time in the future and then begin a prolonged period of being wrong again.


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## none (Jan 15, 2013)

Very very strange. A properly designed couch potato had a 10.4% return from 1976 to 2010. 

http://www.moneysense.ca/invest/classic-couch-potato-portfolio-historical-performance-tables


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## GoldStone (Mar 6, 2011)

james4beach said:


> I'm playing the same crazy Fed-bubble-chasing game all the rest of you are.
> 
> The mainstream thinking is that this can persist for the rest of your life.


Nope. You distort and misrepresent the mainstream thinking. Why is that? You can't win the argument otherwise?

The mainstream investment thinking 101:

1. Avoid all predictions and forecasts.

2. Adopt diversified, balanced asset allocation that meets your risk tolerance.

3. Stick to your asset allocation for the long term.

4. Rebalance when your asset allocation gets out of whack.

That's exactly what many of us here are doing.


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## james4beach (Nov 15, 2012)

I'm not going heavily into stocks until the economy & stock market can survive without the extraordinary emergency measures in place (QE, ZIRP etc)

I don't think it's a good idea to buy a market that can only stay afloat with emergency support.


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## sags (May 15, 2010)

But..............

The TSX was at 15,047.38 on July 18, 2008.

It closed today at 13,361.38


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## Oldroe (Sep 18, 2009)

By spring of 2008 I was sure the market was in for a correction.

I sold some stuff and was 25% cash. When the markets tank I bought the next day. Then I realized this down turn had some legs so I backed off only buying when I could effect my avg. cost. By Dec I'd used up my available cash but still had some GIC money due.

My last 3 buys I max my credit card and payed it off within 30 days. I still payed interest for these 30 days periods and I rolled quarters to get even 100 shares.

Mid March I tried unsuccessfully to get the wife to skip our vacation to Vegas and invest the money.

So I was out of the country and never looked at the markets when I got home just new it was down a bit. Was 2010 before somebody on this forum told me mid March the markets hit there all time low. That's a small regret I likely would have max my credit card with nothing coming due for a few months. Still would have worked out.

I'm again in much the same spot 20% cash a few things that I will sell and my ladder gic are back in place. I also have a line of credit just in case luck happens twice in my life time.

So beach you be happy missing that chance of a life time it would make me ill.


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## Janus (Oct 23, 2013)

james4beach said:


> fatcat, looking back at when I started (late 90s) through to today, my total returns in fixed income have been fine in these ~ 16 years. So far, I have not forfeited any meaningful returns versus stocks.
> 
> Until today, my fixed income has not hurt me. But I agree that's the past.
> 
> ...


Sounds like it's served you quite well. Keep in mind though that the last 10 years have been amazing for fixed income and abnormally bad for equities, and rates have nowhere left to go but sideways or up. Good to see you're dabbling in stocks, albeit a small % of your portfolio.


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## My Own Advisor (Sep 24, 2012)

If your approach is working for your james4beach, that's the only thing that matters.

I wish I could find some deals in the U.S. now, I don't see any.


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## james4beach (Nov 15, 2012)

I am open minded to stocks. I have more stock exposure now than I did in 2007 or 2008, I guarantee you that!

But I see the market somewhat differently than goldstone and many of you folks. I realize that many of you are saying that normal long-term stock plans should be adhered to.

I agree that in normal times there are certain investment behaviours you should be doing, keeping your allocation on track etc. *But I don't think these are normal times* and this is why I hit the pause button on 'normal' stock investing. Again this is just my belief... others may disagree... but I think we have an extraordinary, historically unprecedented capital market situation right now. Basically I think we're still in the emergency mode of 2008. Here's why:


 Companies have been allowed to suspend mark-to-market accounting
 Interest rates are zero in the US and near zero in Canada, an emergency measure
 The Federal Reserve is supporting the entire bond market... QE is unprecedented in history
 The ECB is basically supporting the entire Eurozone right now
 I believe corp earnings would be very, very different without central bank intervention

I can't bring myself to invest in stocks because I feel that I'm not really investing in companies, but really, I'm investing in faith in the central banks.

So I'd like to wait until the emergency measures are over. Maybe this means I wait 5 years... fine, I guess I'll have to.

Question to others:
1. Do you think we're operating in an 'emergency mode' market, with central bank support?
2. If you agree that we are, are you willing to wait until the emergency is over before you invest in stocks/risk assets?


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## Janus (Oct 23, 2013)

james4beach said:


> Question to others:
> 1. Do you think we're operating in an 'emergency mode' market, with central bank support?
> 2. If you agree that we are, are you willing to wait until the emergency is over before you invest in stocks/risk assets?


1. I think the cost of debt is artificially low, and that as far as Europe is concerned, that it is emergency mode.
2. I'm happy to invest in companies with good balance sheets that won't deteriorate when rates start to rise again.

The more important question I think is "what on earth am I supposed to do with my money?". As of right now you either jump in at the peak of a *30-year* bond bull market, or go into equities which are less owned by investors than they have been in decades. Even with the risks you point out, to me it's an easy choice. Because frankly when rates go up and support is pulled, it'll be bonds that crash moreso than equities.


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## Oldroe (Sep 18, 2009)

I invest in company's that take the smallest hit and are the 1st to recover.

I was down in the second half 2008 "a lot" but didn't lose any money. I never sold anything. 

You are fixated on this narrow little set of facts and I'm telling the next correction will be something different will come out of left field and it's time to buy.


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## Toronto.gal (Jan 8, 2010)

james4beach said:


> I think I may have figured out the point of confusion.
> 
> 1. When I say *investing, I include in that definition cash, savings accounts,* GICs and bonds.
> 2. wow, *stocks are a bad idea*
> 3. perhaps when you hear *"investing" you think it must mean stocks*.


*1.* Yes, that had been the confusing part, and though you & others might disagree, the money you made in guaranteed investments had little to do with any financial crisis, because they were safe[r] after all, and why I thought you had meant stocks, and also given the title of the thread. I do believe you often confuse the concept of investing vs savings.

I also had GICs in my teens & 20's [unfortunately I lacked interest in stocks back then], and I'm sure lots other people were in those safe investments at that age as well, but I don't hear them say that they made money during x,y,z crisis. IMHO, more accurate would be to say that you did not lose any money during those periods because you took little or no risk. I wish I had started investing in stocks in my 20's given the time horizon, and especially after a major crisis and the very ones you seemed to have avoided completely in your 20's! In your comment you mentioned the 2000 and 2008 crisis, but what about the years in between? You yourself said you saw the 08 crash coming, so you would have been out before then, no? 

And 'cash/saving' accounts does not necessarily mean investing, not until those funds are put to work. I often hear that short-term trading is not investing but gambling, and I also disagree with that, as not every investment goal need to be long-term. If anything, you're a saver, not an investor IMHO, and nothing wrong with that, but your constant voice of doom around here, and not just about investments, gets a bit tiring.

*2.* Each to their own, but that blanket statement is incorrect.

*3.* You're right, I don't think about investment vehicles that protect, especially when the topic is the stock market.

Something tells me that you have read the book 'A Path to Financial Peace of Mind', but that you did not fully understand it.


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## Pluto (Sep 12, 2013)

james4beach said:


> I'm not going heavily into stocks until the economy & stock market can survive without the extraordinary emergency measures in place (QE, ZIRP etc)
> 
> I don't think it's a good idea to buy a market that can only stay afloat with emergency support.


james4beach, your words will be famous last words. You are trying to use the economy to predict the market, and it doesn't work. The stock market is a *leading economic indicator*. If you think that a strong economy means a strong stock market, you are mistaken. A strong economy means, inflation fighting higher and higher interest rates, and the latter invariably breaks the back of a bull market. 

Stick to fixed income until you have this figured out, or suit yourself, and buy stocks near a top, and figure it out later.


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## Pluto (Sep 12, 2013)

james4beach said:


> Yes I was investing from an early age, mostly in fixed income. Why am I a bear?
> 
> 1. The moment I graduate high school, the stock market crashes in 2000
> 2. My bonds & GICs keep making money... so I learn, wow, stocks are a bad idea.
> ...


The risk/reward of stocks is only crappy if you buy near a top. Isn't it obvious that the market predicts/leads the economy? In 2008 the market tanked *and then* the economy tanked. Then, in 2009, a new bull market in stocks emerged. The market is leading/predicting a better economy. Obviously the safest time to buy stocks is not too long after it is clear the economy is crap and fear is at it's maximum. 

So you have a successful business and your income enables you to save and collect interest on GIC's and what not. And thereby you avoided one or two market debacles. That doesn't mean you are a stock market guru. It simply means that you don't understand what drives the stock market, and you (wisely) avoided it. If you actually understood the market, back in the fall of 2008, and March 2009, you would have cashed in your GIC's and whatever, and bought stock, even just a index etf, and would have likely doubled your saving by now. Too, right now you would be thinking of trimming your stocks back to lock in your gains, instead of waiting for the economy to get better. 

Quite frankly, you have the potential to become quite wealthy, but not if you buy stocks with your current theory of when to buy. Your theory - buy stocks when the economy is better - is the exact opposite of what one should do. One should be cutting back on stocks when the economy is better. Then wait until the market tanks, and the economy is crap, then buy stocks again.


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## james4beach (Nov 15, 2012)

Janus said:


> As of right now you either jump in at the peak of a *30-year* bond bull market, or go into equities which are less owned by investors than they have been in decades. Even with the risks you point out, to me it's an easy choice. Because frankly when rates go up and support is pulled, it'll be bonds that crash moreso than equities.


True, the bond bubble (ultra low interest rates) is ground zero for all of this. Yes we have a 30-year bond bull market, and this is the basis for everything.

Given the choice of joining the 30-year bond bull in either stock or bond form, I choose bonds ... with maturities tightly controlled (this is what I'm doing). I disagree that bonds would crash more than equities. I think that if the 30 year bond bull market ends, stocks & other risk classes (like REITs) will get hit harder than bonds.

I think what you're missing is that stocks are totally dependent on low interest rates. So the prices that stocks trade at today, and the level of corporate earnings, is all based on ultra-low interest rates. Stocks are the risk asset class that have been directly responding, most acutely, to the stimulative low interest rate environment.

If interest rates were to normalize, it's not just bonds that will fall. Everything will fall: stocks and bonds (and real estate of course) will plummet on rising interest rates.

Just look at the way *up*. Since 2009, as the Fed has reduced interest rates and inflated the bond market, which prices have responded stronger: stocks or bonds? Stocks have responded way more strongly. It follows that stocks would decline more, too. Stocks, a risk asset class, are a form of leveraged exposure especially because financial system leverage underpins the economy, and financial leverage is all predicated on low interest rates.

True that at the 30 year end of the curve, bonds will get creamed. When it comes to the typical bond (let's call it a 10 year) you're looking at a duration measure of 6.7. Even a whopping 3% rise in benchmark yields would result in a -20% decline in say XBB price. [ Personally my average duration is well below this ]. My guess is that stocks would decline a lot more... can you imagine the Canadian or US economy with 5.5% benchmark 10yr rates? It would be a disaster! Consumer borrowing would stop, real estate would crash, companies would stop being profitable due to the cost of credit.

This is my thinking anyway. Stocks and bonds are both totally dependent on low interest rate policy, and I think stocks are the leveraged exposure. If interest rates rise, I think stocks will get hit much worse than bonds, especially when you're carefully watching the extent of your fixed income maturities.


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## none (Jan 15, 2013)

Rather than thinking that low interest rates are supporting the economy I more think of it as they are pushing the economy. Once sufficient momentum in the economy has been achieved through stimulative action the low interest rates can be removed and the economy can continue to huff along without the help.


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## james4beach (Nov 15, 2012)

none said:


> Rather than thinking that low interest rates are supporting the economy I more think of it as they are pushing the economy. Once sufficient momentum in the economy has been achieved through stimulative action the low interest rates can be removed and the economy can continue to huff along without the help.


Keep in mind the Federal Reserve and Bank of Canada have kept the 'emergency low' interest rate this whole time, and there is no mention of raising it any time.

I am betting that will not happen (sufficient momentum and organic recovery). I am betting that this is a temporary, entirely stimulus-driven "recovery" and that the economy is totally unable to support itself without low interest rates.

And the reason I don't think it can happen because the underpinning problem (unreasonably large personal & government debts) has not been resolved at all. It's only gotten worse. Ultra low interest rates are only a way to temporarily alleviate the 'burden' imposed by high debt servicing costs.

The debt is still there, and it's MORE now.


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## james4beach (Nov 15, 2012)

By the way, large personal debts would be manageable only if real wages went up.

However, real wages have been stagnant since about the 1970s. The consumer has zero capacity to handle higher debts. Low interest rates are the only thing that keep the economy going. Just look at what people ask whenever they're shopping for anything. Their only question is: what is the monthly payment?


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## sags (May 15, 2010)

The "recovery" must be well hidden.

Layoffs at Sears, Loblaws, US Steel, RIM, Encana..........and now Kelloggs.

Those aren't the signs of economic prosperity.


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## sags (May 15, 2010)

Speaking of personal debt loads, car sales have been pretty good.

But according to GM, 80% of their sales are to subprime borrowers.

We are going down that road again, but what choice do they have.

Close 80% of their manufacturing?


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## andrewf (Mar 1, 2010)

The newsflow is not a very reliable indication of how the economy is doing. Manufacturing employment is actually not doing too bad. Most of the jobs lost in Ontario were low wage, low-value added positions. You'd also think that oil and gas has become a larger part of Canada's GDP, but it turns out that O&G's share is flat to negative.


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## Janus (Oct 23, 2013)

james4beach said:


> I think what you're missing is that stocks are totally dependent on low interest rates. So the prices that stocks trade at today, and the level of corporate earnings, is all based on ultra-low interest rates. Stocks are the risk asset class that have been directly responding, most acutely, to the stimulative low interest rate environment.


I don't agree - stocks are not totally dependent on low interest rates. Are you aware that debt to equity ratios for US companies are the lowest since 1990? (The data doesn't go any further back but it may be the lowest for a much longer period). What does a 25bps increase in interest rates mean to the earnings of Loblaws, or of Apple?


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## underemployedactor (Oct 22, 2011)

Apple issued 17 Billion dollars in floating and fixed rate bonds just this year. Don't you think that makes them just a little sensitive to interest rates?


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## Janus (Oct 23, 2013)

underemployedactor said:


> Apple issued 17 Billion dollars in floating and fixed rate bonds just this year. Don't you think that makes them just a little sensitive to interest rates?


Sorry, I'm not saying they're immune - but thinking that the price of Apple stock (or stocks in general, as James posits) is primarily determined by low interest rates is false. Is Apple's fate riding on how rates affect those bonds over the next 2 years? The answer is clearly no.


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## andrewf (Mar 1, 2010)

The main impact on firms of rising rates is not really on their debt service costs. The bigger impact is on credit growth. The credit cycle is what drives the economy.


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## james4beach (Nov 15, 2012)

Janus said:


> I don't agree - stocks are not totally dependent on low interest rates. Are you aware that debt to equity ratios for US companies are the lowest since 1990?


That's because corporate debt burden got offloaded to government. The debt didn't disappear; now the government is burdened with it.

You remember how the US spent a few hundred billion $, and then an extra few trillion $ assuming liabilities right? It would be shocking if US corporate debt had not dropped after that.

Just a shell game. The economy is still burdened by debt


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## scomac (Aug 22, 2009)

james4beach said:


> Just a shell game. The economy is still burdened by debt


So what makes you think that interest rates are headed upwards, perhaps sharply when the economy carries this burden and there is no capacity amongst consumers or government to take more on?


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## HaroldCrump (Jun 10, 2009)

The ECB just cut rates down to 25 bps...interest rates aint' going nowhere anytime soon.


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## andrewf (Mar 1, 2010)

ECB has kept rates way too high for a while now. They were appeasing Germany's irrational fear of inflation (the worst thing possible in the eyes of Germans). Europe has been teetering on the edge of a liquidity trap for near on 5 years. They are repeating the mistakes made by Japan by keeping zombie banks on life support.


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## blin10 (Jun 27, 2011)

james4beach said:


> I am betting that will not happen (sufficient momentum and organic recovery). I am betting that this is a temporary, entirely stimulus-driven "recovery" *and that the economy is totally unable to support itself without low interest rates.*


use common sense, why would fed raise interest rates if economy is weak and unable to support it? the way your logic flows is that after so many years of fed support, now all of a sudden fed will cut that support, let rates sky rocket and let stock market dive ? next correction might happen not even because of lower fed support, who knows


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## james4beach (Nov 15, 2012)

Wait guys, I don't recall saying I expect the Fed to raise interest rate. Did I write that somewhere?

I expect the central banks to keep interest rates low for a long time, because the economy is in emergency/panic mode ever since 2008.

The Fed, and Bank of Canada, are too scared to raise rates: the economy is too weak


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## james4beach (Nov 15, 2012)

blin10 said:


> use common sense, why would fed raise interest rates if economy is weak and unable to support it? the way your logic flows is that after so many years of fed support, now all of a sudden fed will cut that support, let rates sky rocket and let stock market dive ? next correction might happen not even because of lower fed support, who knows


You confused me blin. You seem to be agreeing with what I'm saying: all of a sudden, the Fed will not cut support. They won't let rates skyrocket. Low central bank rates are here to stay because the economy is weak.


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## james4beach (Nov 15, 2012)

Is my brain not functioning properly?

Show me where I wrote that I expect the central banks to raise the overnight rate


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## james4beach (Nov 15, 2012)

Pluto said:


> The stock market is a *leading economic indicator*


So I guess you would say the stock market was a wise forward looking predictor in 1999 and 2007 ?


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## Longwinston (Oct 20, 2013)

james4beach said:


> You know, I would think that you all would be grateful to hear the experience from someone such as myself who successfully navigated two back-to-back market crashes without pain.
> 
> I'm basically telling you that I avoided stocks and it worked out pretty well for me. What's so hard to understand here?


Well one, equity markets, stocks outperform 'fixed income' even with the crashes. The secret isn't to time the market, it's to not sell when the stocks do correct.
So I think I am understanding, it's that you are not. Being in bonds, you are losing spending power. 

There could be a correction tomorrow for all I know, but I don't care. I invest in quality businesses and don't worry about that stuff. in fact, I buy more. it's s sale!


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## none (Jan 15, 2013)

I think where james is getting mixed up is he's looking at his portfolio too much. Does a crash matter tomorrow? not really, unless you need all your money tomorrow. Ultimately you are interested in is how much you have at your withdraw period. If there is up, down sideways etc before that it doesn't matter. Further, there is nothing magical about zero, it's the relative amount. My sister in law asks me often: So how is your couch potato doing??? Really, the only answer is: about 1.5% better than a properly diversified mutual fund is doing.

Did James successfully navigate two market crashes? Not at all, instead he took on the pain (and even more) of those market crashes over a longer period and subsequently he's farther behind than he would have been if he diversified himself properly.


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## humble_pie (Jun 7, 2009)

james4beach said:


> I'm basically telling you that I avoided stocks and it worked out pretty well for me. What's so hard to understand here?


james4 i'm basically saying that i cannot seriously believe that a party who held bonds from the late 1990s would be, today, ahead of a party who had held stocks.


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## james4beach (Nov 15, 2012)

humble_pie: well, bonds and GICs

Yes I acknowledge that at current stock levels, I would have been "better off" in stocks vs fixed income for total return. Then again there is some value in avoiding sharp declines of your capital. When I look back at my returns to the late 90s, and consider the volatility in stocks, I'm pleased with the way I've deployed my capital and the way it has consistently grown.

Still, I don't feel any compulsion to "join the game". I see major problems with the capital markets and I don't like the idea of buying into something that I think is broken & overvalued. I did my research and was correct in 2007-2008 [ by correct I mean that what I forecasted did indeed happen]. Bolstered by that success in fundamental analysis, I suppose I'm gambling that I am correct again.


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## Longwinston (Oct 20, 2013)

james4beach said:


> humble_pie: well, bonds and GICs
> 
> Yes I acknowledge that at current stock levels, I would have been "better off" in stocks vs fixed income for total return. Then again there is some value in avoiding sharp declines of your capital. When I look back at my returns to the late 90s, and consider the volatility in stocks, I'm pleased with the way I've deployed my capital and the way it has consistently grown.
> 
> Still, I don't feel any compulsion to "join the game". I see major problems with the capital markets and I don't like the idea of buying into something that I think is broken & overvalued. I did my research and was correct in 2007-2008 [ by correct I mean that what I forecasted did indeed happen]. Bolstered by that success in fundamental analysis, I suppose I'm gambling that I am correct again.


If you were correct in 2007 & 2008 then you were wrong in 2009, 2010, 2011 and 2012.
Your money though so do what you like.


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## james4beach (Nov 15, 2012)

I wrote above: by *correct* I mean that what I forecasted did indeed happen. This is about fundamentals and the economy. I'm not talking about stocks going up or down... that's a side show.

Back in 2007 I believed that credit was inflated, fed by low interest rates and a real estate bubble. I thought bad mortgages were going to overwhelm the banking system, many banks were going to fail. I was correct. All of the experts who told you the opposite, including your advisors, brokers, economists, columnists were wrong.

Currently, I believe that central bank stimulus has again inflated asset prices and resulted in misallocation of capital. I believe that the banking system is still fundamentally not sound, overleveraged, and that all of the underlying problems from 2008 still remain and have not been addressed.

That's what I currently think. I am not forecasting stock prices based on this, I don't really care about the stock prices.

In something like 5 years, we'll see if I'm correct. I will be "correct" if indeed, it turns out that QE and ZIRP stimulus has warped asset prices and if banking problems come back.


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## HaroldCrump (Jun 10, 2009)

James4, if you had such strong conviction in 1999 and again in 2007, the way to make money is to make contrarian bets, not sit on the sidelines in GICs and govt. bonds.
For instance, in 1999, you should have been short selling the tech stocks and the NASDAQ index funds.
In 2007, you should have been shorting the insurers, the investment banks, and the DOW/S&P 500 index.

If, despite your strong convictions, you have stayed in GICs and govt. bonds, you have not made any money.

Ref. your statements about central bank stimulus, ZIRP, Q/E, and asset inflation - at this point, it is not a contrarian POV.
This has been well known since at least mid 2010.

If you are convinced that this is all setting up for a mother-of-all-crashes, you should be making large contrarian bets at this time.
Such as buying Bitcoins, or gold, or short selling the major indices, etc.


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## sags (May 15, 2010)

David Trahair did a comparison.........exerpts from the Globe and Mail article linked........

_David Trahair: Thanks Andrew - I get this comment a lot! Here are the statistics as I have calculated them for the S&P/TSX Composite Index and the S&P/TSX Composite Total Return Index (that includes reinvested dividends and income trust distributions). I have calculated them to August 31, 2009. I also have shown what GICs did.

Average Annual Rates of Return:

S&P/TSX Composite Index

10 years to August 31, 2009 - 4.54%
20 years to August 31, 2009 - 5.11%
30 years to August 31, 2009 - 6.39%
40 years to August 31, 2009 - 6.15%
50 years to August 31, 2009 - 6.08%

S&P/TSX Composite Total Return Index

10 years to August 31, 2009 - 9.41%
20 years to August 31, 2009 - 8.86%
30 years to August 31, 2009 - 10.76%
40 years to August 31, 2009 - 9.77%
50 years to August 31, 2009 - 9.80%

GICs

10 years to August 31, 2009 - 3.35%
20 years to August 31, 2009 - 5.11%
30 years to August 31, 2009 - 7.28%
40 years to August 31, 2009 - 7.71%
50 years to August 31, 2009 - 7.35%

As you can see GIC returns seem to be competitive - in the long term not much lower than the TSX Composite Total Return Index. There are a few important differences however.

One, there is no risk. You will never get a minus 30%, 40% or 50% return with a GIC like you can in the stock market.

The second issue is fees - if you take off 2% MER for a mutual fund you are down to near GIC territory.

The last issue is you would need to be 100% in equities (in the stocks in the index) to achieve the Total Return rates.

The last point is emotions - were you able to hold on when your equities lost almost 50% of their value from June 18, 2008 to March 6, 2009?_

http://www.theglobeandmail.com/glob...s/buy-gics-only-gics/article4195771/?page=all

His study only went to September 2009 and a lot has happened since, and people with investment acumen would have fared better since then......but the TSX is still well below it's 2008 record highs.......almost 2000 points below, so with fees etc........would people have done better in GICs since then?

There is a lot reported on the amount of money sitting in GIC and savings accounts. It is estimated that 80% of all TFSA money is held in GIC or high interest accounts. The weak participation rate in the stock market is another example.

Often, financial "experts" lament the fact that so much capital is held in GIC and savings account. They believe the people are "losing" the opportunity to increase their returns.

What they never seem to address..........is who holds all that capital?

I would suspect that besides the wealthy........it is predominantly baby boomers who are already in, or close enough to their retirement date that they are more interested in preserving their capital than risk losing any of it.

True, GIC rates are low today.......and it may continue for some time, but they are risk free. In a registered account, the returns are keeping up with the "official" rate of inflation. The risk of inflation is one of the problems cited with holding GICs.........but the risk of inflation only affects people when they spend the money.

Retirees may only wish to spend the capital at their pleasure and by doing so they can pay cash to get discounts, shop around for better deals, or decide not to buy a product or service if inflation has run the price up too high.

Warren Buffet made a comment that I believe best explains it.

Rule number 1 is to preserve your capital. Rule number 2...........see Rule number 1.


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## james4beach (Nov 15, 2012)

HaroldCrump said:


> James4, if you had such strong conviction in 1999 and again in 2007, the way to make money is to make contrarian bets, not sit on the sidelines in GICs and govt. bonds.
> For instance, in 1999, you should have been short selling the tech stocks and the NASDAQ index funds.
> In 2007, you should have been shorting the insurers, the investment banks, and the DOW/S&P 500 index.


I guess I disagree with you there, it's very hard to profitably short, for a few reasons. First the manic run is typically so violent that you can suffer catastrophic losses, even if you will eventually be right. Shorting the stock market in 1998 or 1999 was suicidal, the losses would have been huge even if you were eventually right.

Second problem: the SEC and OSC do things like banning short selling. Remember how they did that? Right when bank stocks were falling? I had colleagues that were short REITs, a great position, yet they were ruined when the SEC made some REITs unshortable. It was a disaster for them even though they were right on the position. They got screwed bad.



> Ref. your statements about central bank stimulus, ZIRP, Q/E, and asset inflation - at this point, it is not a contrarian POV.
> This has been well known since at least mid 2010.


So you're comfortable buying into a market that even you acknowledge is inflated by stimulus?


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## Sampson (Apr 3, 2009)

Sags, do the same comparison except now use today as the date, not the bottom of a major crash.

The true test is not to take 2 dates, but rolling periods. Who in the World invests all there money on one specific day, then sells all their holdings in the middle of a crash?


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## james4beach (Nov 15, 2012)

Yup the problem with his comparison is it was done at the bottom. But his points are still valid (it's just that it's a much more compelling argument when evaluated at a low point of the market). If you use today's date you're taking a very high point on stocks. Reality is, stocks jump all over the place

There's a big difference between GICs and stocks. The risk profile is completely different. So the fact that the returns can be similar should be a huge wake-up call to stock investors, I think.

You should be getting much higher returns in stocks. If you're not, then you're taking risks for no reason.


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## sags (May 15, 2010)

Few people would invest all their holdings in one day, perhaps someone who won a lottery or received a big inheritance, but most people who have stock market portfolios will lose significant % of their capital in the middle of a crash.

If they sell it or not, doesn't really matter. The loss is still there...........sold or not.

Who it affects are those lacking the resources or time to recover the losses, and after the last stock market crash that was millions of people who were retired or entering into retirement.

I am not debating the results for someone who entered the markets in 2008 and invested until 2013, wouldn't have done much better than holding GICs.

But, people who had significant holdings built up in 2007.........got crushed in the markets, hence all the stories of retirees forced to go back to work and a big reason why so many of them have stayed well clear of the stock markets since.


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## sags (May 15, 2010)

The study on GICs was only part of the author's thesis in his book.

One of his main points was that people should not borrow to invest in the stock market, and should pay down debt, before buying stocks etc.

I think most members of the forum would at least agree with his idea that paying down debt first is a good idea.


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## andrewf (Mar 1, 2010)

It really depends on the kind and cost of the debt.


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## GoldStone (Mar 6, 2011)

sags said:


> S&P/TSX Composite Total Return Index
> 
> 50 years to August 31, 2009 - 9.80%
> 
> ...


9.80% - 7.35% = 2.45%. Compound $1000 for 50 years and see what difference 2.45% makes.

(hint: huge difference)

Of course, you don't have to choose between 100% stocks and 100% GICs. Balanced allocation is the way to go for most people.


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## james4beach (Nov 15, 2012)

Strong advocate of balanced allocation here. As I posted in #11, among my investable assets I'm basically 50/50 stocks and fixed income (GICs, bonds, HISA, etc)

Aren't you guys happy for me that I own stocks? We're all going to get rich in the stock market together! The Federal Reserve is gonna make us all rich!!


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## sags (May 15, 2010)

GoldStone said:


> 9.80% - 7.35% = 2.45%. Compound $1000 for 50 years and see what difference 2.45% makes.
> 
> (hint: huge difference)
> 
> Of course, you don't have to choose between 100% stocks and 100% GICs. Balanced allocation is the way to go for most people.


True,.........not to quibble but you would have to be 100% invested in equities to get that difference in returns and there would be fees to deduct.

But I do agree with you.......for the informed investor.

Unfortunately, informed investors are the minority.

I am far from any expert on investing, but anytime any of my family ask about simple things even, after I begin to explain it their eyes glaze over and they aren't interested anymore.

They want it quick, easy, and simple.


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## Sampson (Apr 3, 2009)

what you describe sags is the sequence of returns risk. Yeah, it is present, and for those retiring during 08/09 it would have been life altering. Those that realized they will live 20+ years after retirement would have had to maintain equity allocation anyway to reduce the risk of out living their savings. In the end, equities have shown to have much greater returns over long periods (20 yrs), in fact the highest rate of return over any rolling 20 yr period.

Will $1 invested today in equities giving a higher rate of return than $1 invested into GICs? Don't know, but this is a game of likelihood and probabilities. My money is still on equities. Those with the ability to forsee the future should putt heir money where the action is, could be GICs.


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## Sampson (Apr 3, 2009)

sags said:


> They want it quick, easy, and simple.


Easy, stay invested.


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## GoldStone (Mar 6, 2011)

sags said:


> True,.........not to quibble but you would have to be 100% invested in equities to get that difference in returns and there would be fees to deduct.


Yes. Fortunately, we have Vanguard. VTI MER: 0.05%.

2.45% - 0.05% = 2.40%. Compound $1000 for 50 years and see what difference 2.40% makes.

hint: *still* huge difference

And, of course, you cherry picked the end date (2009) that penalized equities.


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## andrewf (Mar 1, 2010)

Also cherrypicked a multidecadal bull market in bonds.


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## Janus (Oct 23, 2013)

GoldStone said:


> 9.80% - 7.35% = 2.45%. Compound $1000 for 50 years and see what difference 2.45% makes.
> 
> (hint: huge difference)
> 
> Of course, you don't have to choose between 100% stocks and 100% GICs. Balanced allocation is the way to go for most people.


Yep. With a $10,000 investment, 9.75% (I took off the 0.5% for an ETF) over 50 years gets to $1,047,645. The same $10,000 making 7.35% gets to $346,819. And* all of this *is with cherry-picked best possible timing for bonds and worst possible timing for equities.


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## sags (May 15, 2010)

For most of the 50 year period (1959 to 2009), the fees would have been fixed minimum brokerage fees, and later mutual fund fees, and finally low cost funds and ETF fees for a few years. The fees would have stripped a lot of the "extra" capital away from equities, especially during the "down" years when fees still had to be paid on declining portfolios.

It also would have been virtually impossible to replicate the stock market index, until mutual funds were invented, so stock picking ability would have been crucial to success.

But today we have low cost funds and ETFs, so it is a different world........with likely entirely different results into the future.

On the other hand, nobody knows when or if stock markets will take another large decline.

GICs offer security against such losses, at the wrong time in people's lives. The loss of additional revenue is the price of the guarantee.

I guess that is my point. It all depends on where a person is on the age or retirement continuum.

For some people, GICs are the best solution.


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## Rusty O'Toole (Feb 1, 2012)

Another bubble, big deal. We survived the dot com crash in 2000 and the real estate crash in 2007. Why will next time be any different?

And there will be a next time. Everyone knows we are in a bubble blown by 4 years of quantitative easing. In September the Fed announced they were going to ease off on the easing, from 85 billion a month to "only" 75 or 80 billion. Just the threat was enough to kick interest rates up and send financial markets into a swoon so they chickened out.

For 5 years they have been saying they will stop the stimulus when the economy recovers and after 5 years, it has still not recovered. They have as much as admitted they have no choice but to keep the pedal to the metal till the death smoke comes rolling back from under the hood and the rod is sticking through the block.

Starting with the Long Term Capital Management crisis in 1998 their response to every problem has been to juice up the economy and blow another bubble.


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## Longwinston (Oct 20, 2013)

Well bubbles pop. Saying that is like saying the sun will come up tomorrow – we know it will happen but we don’t know when, or why. Whether they are real estate, debt, equities, precious metals etc. They eventually pop and no matter what it is, it will affect the stock market. What I am saying is that the doomsayers will always be right eventually, the same way a broken clock is right twice a day. Timing the market is a fool’s errand.

Example, that globe article is taking all of its measures on equities vs GIC’s in the summer of 2009 (!) which is one of the lowest points for equities, as we all know. The guy is basically counseling people in the summer of 2009 (!) to buy GIC’s when what they should have been doing was investing in quality companies that produce a lot of free cash flow and are consistently willing to share the cash with their shareholders. So what he was counseling was the exact opposite of what people should have been doing. We know this now with the benefit of hindsight and yet this is still now being shown as a proof to invest in GIC’s?

If people consistently bought stock in quality large cap, wuality companies that paid a rising dividend and stuck with it in good times and in bad, they will have a wealthy retirement. Time and compounding is the secret.

But like I say, people too afraid of volatility can sit on the sidelines if they like and guarantee them to lose purchasing power by getting returns lower than inflation if they want – its your money. I would just like to see everyone do well. Don’t Trade – buy and hold.

Good luck all.


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## Longwinston (Oct 20, 2013)

sags said:


> For most of the 50 year period (1959 to 2009), the fees would have been fixed minimum brokerage fees, and later mutual fund fees, and finally low cost funds and ETF fees for a few years. The fees would have stripped a lot of the "extra" capital away from equities, especially during the "down" years when fees still had to be paid on declining portfolios.
> 
> It also would have been virtually impossible to replicate the stock market index, until mutual funds were invented, so stock picking ability would have been crucial to success.
> 
> ...


quibble. I know stock markets will take a big tumble. Know it. I know it like I know the back of my hand. Yet I invest in large cap, dividend paying companies anyways. When that tumble comes I will deploy all the extra cash I can possibly muster and buy even more of the large cap, dividend paying companies.
Stock market tumbles are as certain as death and taxes. They are fine if you can control your emotions. If you can’t, stay in bonds but you will have to save much more than I will because of the tiny returns that you will be getting. 
Guaranteed no volatility costs money – a lot of money.


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## Longwinston (Oct 20, 2013)

sags said:


> Few people would invest all their holdings in one day, perhaps someone who won a lottery or received a big inheritance, but most people who have stock market portfolios will lose significant % of their capital in the middle of a crash.
> 
> If they sell it or not, doesn't really matter. The loss is still there...........sold or not.
> 
> ...



Huh? I think I found your problem.

If I have 100 shares of KO and today they are worth $40 a share and tomorrow they are worth $30 a share, I didn’t “Lose” anything.
The value of the shares went down that day but unless I agree to sell for that low price it means nothing. What people should be concentrating on is the fundamentals of the company – are they still making a ton of cash? Check. Do they still dominate the market that they are in? Check. Are they still sending juicy (tax advtantaged) dividends to me that increase every year? Check.
Why would you sell? Fear. That’s the only reason. If you do sell at the bottom, that’s not the stock markets fault – it’s the sellers fault.

I think a huge problem today is that people spend a way too much time looking at the stock price and too little time at the value and fundamentals.
Scary to me that you think price swings in a stock price as a loss even if you don’t sell.


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## james4beach (Nov 15, 2012)

This all just sounds very similar to the psychology near previous market peaks.

1998: "sure, we know tech stocks are wildly overvalued, but realistically what are you going to do -- stay out of stocks? You can't do that, you need stock exposure otherwise inflation will erode your earnings and you'll die poor! So let's buy NASDAQ"

2006: "sure, there's probably Fed-induced housing bubble, and companies like Countrywide have given mortgages to anyone with a pulse. But realistically what are you going to do? Stay in cash and earn next to zero, with a declining US dollar? Nope... you've got to be in the stock market, because historically it produces best returns"

2013: "sure, it's obvious that Fed and ECB's ZIRP and QE has inflated stocks, there's a direct observable correlation between Fed balance sheet and the S&P 500, it's gone up 28% in a year despite no earnings growth. Unemployment remains high and Asia is slowing down. But realistically what are you going to do, stay out of stocks? Inflation could kill you and you'll never retire without stock exposure"


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## Toronto.gal (Jan 8, 2010)

sags said:


> *1.* Who it affects are those lacking the resources or time to recover the losses, and after the last stock market crash that was millions of people who were retired or entering into retirement.
> *2. *Warren Buffet made a comment that I believe best explains it...Rule number 1 is to *preserve your capital.* Rule number 2...........see Rule number 1.
> *3.* If they sell it or not, doesn't really matter. *The loss is still there...........sold or not*.


*1.* Of course it affects those people, but you can't blame the decisions of investors on the stock markets, especially those you mentioned above, for their top heavy exposure to equities, which should have reflected their ages & particular financial situations. But even so, would their fixed income have changed much had they invested in quality companies?

From my [CDN] dividend paying stocks, only one has reduced its dividend, just last week in fact; another reduced it before I purchased it, so I don't count it. 

Also, you can't blame the markets for those that sold at, or near the bottom, which for many people, it has been a key reason for having to continue to work, to make up the realized losses.

*2.* He also said: 'be fearful when others are greedy, and be greedy when others are fearful.' Another quote of his 'a non-fluctuating asset can be laden with risk.'

http://www.forbes.com/sites/iese/2013/05/20/stocks-riskier-than-bonds-not-if-you-think-like-buffett/

*3.* Would Buffett agree?


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## Toronto.gal (Jan 8, 2010)

james4beach said:


> *1. *I can't bring myself to invest in stocks because I feel that I'm not really investing in companies.... I'd like to wait until the emergency measures are over. *Maybe this means I wait 5 years*... fine, I guess I'll have to.
> 
> *2.* *I don't think these are normal times* and this is why I hit the pause button on 'normal' stock investing.


*1.* Honestly J4B, you write as though you were 50+, or less than 10 years from retirement, as that is when people should start taking risk seriously. 

So starting in your late 30's [in 5 years] makes more sense to be in stocks than would have been since your 20's? How does that make sense when in your younger years, the ability to not only save, but earn a salary for 30+ years, would have dwarfed the negative values in your portfolio?

It makes little sense to me, that with all your early interest in the markets/knowledge/research skills/human capital, etc., etc., that you have pretty much wasted a good 15 years from your current 30+ year horizon [if you truly began investing at 20]. 
What good was it to predict market crashes, as you say you did, if you did not participate in their recovery? 

*2.* Did you not think same since the 90's, or did you not say that 'stocks were a bad idea' since then?


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## none (Jan 15, 2013)

^Genius^

*What good was it to predict market crashes, as you say you did, if you did not participate in their recovery?*


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## sags (May 15, 2010)

The concept that portfolio losses aren't really losses, because you don't sell them until they recover, ignores the years of lost opportunity and lack of growth......that it takes for a portfolio to recover.

From the 2008 high on the TSX..........has it got back to where it was yet?

The answer is no........and for those people who had their portfolios wiped out in 2009.....have they fully recovered. It depends on what they invested in.........but if they invested in the TSX whole index, they have not fully recovered.

So, the latest 5 year bull run on stocks.......the "recovery" of the stock markets have improved their portfolios.......but they are not back to even, and they have lost 5 years of gains (on top of what they already had accumulated)

Many of the arguments put forth are assuming people started investing in 2009........and have done well since then.

There is also the mathematics involved in % losses on a larger amount of money.........compared to % gains for a smaller amount of money.

Example.......if someone had 100,000 invested in 2008 and it fell by 40%.........they had 60,000 left.

A 40% recovery in their stocks only returns 24,000.......for a total portfolio of 84,000..........same percentage loss and gain.........but a 16,000 difference.

Lastly, it is my premise that people close to retirement or in retirement can ill afford big losses to their portfolio........if they are wholly dependent on it for retirement income. Some may be forced to take the risk on equities, but it is a gamble for them to take. They simply can't afford big losses to their portfolios at the same time they are withdrawing funds. 

If my premise is correct, then given the baby boomer demographics, it is likely that a lot of the money "invested" in any form or fashion........belongs to the baby boomer generation, who are already in retirement or close to it.

*If you have 20 or 30 years until retirement.........by all means stay fully invested.*

But people in the 30 - 40 year age groups aren't usually the ones who have large pools of capital built up over decades.

For people wholly dependent on their portfolios for retirement income, and who have insufficient capital to fund their retirement without taking on the risk inherent to equity investing, it may be a more prudent solution to invest in GICs and downwardly adjust their income and lifestyle plans for retirement.


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## donald (Apr 18, 2011)

I always thought crashes happen one minute after everybody is toasting champaign glasses looking out onto a ocean that looks like clear blue glass without a ripple of a wave and the sun is shinning bright and there is not a frown in sight?
I don't think that's what's happening here,wouldn't the contrarian play here but the Feds actually successful pull off the easing?
To simplistic?everybody right now is like a cat in a room full of rocking chairs,climbing the wall of worry.
Physcology of the wisdom of a crowd and how bubbles burst?


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## sags (May 15, 2010)

Central bank intervention is forcing people into equity markets, which is one factor for rising stock values.

Some of those people......probably many of those people.......shouldn't be investing in the stock market at all.

I remember all the stories from the last recession, of people trying to sue their financial advisor, being forced to go back to work, or telling their stories of woe in the media. Many of the people were financially clueless and had no idea what they had invested in.

If there is another crash in the stock markets, I expect a repeat of all that.


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## james4beach (Nov 15, 2012)

Toronto.gal said:


> *1.* Honestly J4B, you write as though you were 50+, or less than 10 years from retirement, as that is when people should start taking risk seriously.


People have told me I'm an old man at heart, something I'm proud of.



> What good was it to predict market crashes, as you say you did, if you did not participate in their recovery?


First of all, I didn't predict a market crash. The economy is not synonymous with the stock market. They are very different things.

I wrote in #66: "by correct I mean that what I forecasted did indeed happen. This about fundamentals and the economy. I'm not talking about stocks going up or down... that's a side show."

What I predicted and analyzed correctly in 2007 was the macro picture and capital market condition -- *that* is what I got right in 2007. I absolutely got the 'analysis' right (health of the capital markets). I didn't predict the crash, but it wasn't a surprise based on what I knew about the health of the economy & capital markets.

The point of being aware of the fundamentals was that I positioned myself more conservatively, because of the risks out there. As it happened there was a market crash. Even if there wasn't, being conservatively positioned was the right move.

Secondly there has been no major recovery of fundamentals. Again I'm talking all about macro conditions here, not the stock index. Those conditions in 2008 persist today ... bad debts, excessive leverage, high consumer debt, structurally high unemployment, lack of high paying upper middle class jobs.

The way I see it: the economy crumbled in 2007/2008. On fundamentals, it hasn't yet recovered today (this is why we still have emergency low zero interest rates). And that's why I'm not comfortable investing in risky asset classes like stocks.

The market was on shaky ground in 2007, and it's still on shaky ground today. I see that a minor recovery has happened, but no major recovery, and I don't care that stocks have shot up so much. Just as in 2007, I choose to largely stay out of stocks because the economy & capital markets are not on solid grounds.


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## HaroldCrump (Jun 10, 2009)

james4beach said:


> The market was on shaky ground in 2007, and it's still on shaky ground today. I see that a minor recovery has happened, but no major recovery, and I don't care that stocks have shot up so much. Just as in 2007, I choose to largely stay out of stocks because the economy & capital markets are not on solid grounds.


James4, _when_ was the market on "solid" grounds in your lifetime?

Not in the 1990s, as you have said, certainly not in early 2000s as you have said.
But, you are also saying that by mid 2000s, it was already a bubble.
And it has not been on solid footing since 2007 anyway.

My dad tells me stories of the stagflation days of 1970s and the hyperinflation of 1980s.

I am sure his dad told him stories of the two Great Wars and the 13 year Great Depression.

And yet...yet...stocks have returned double digit returns over long periods of time.

Even in your lifetime (you claim to be 31), North American markets are returning 10% annualized returns, give or take.

You do realize that you will most likely end up staying out of the markets for ever.


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## Janus (Oct 23, 2013)

sags said:


> Many of the arguments put forth are assuming people started investing in 2009........and have done well since then.


See, this is your problem. You don't realize that people in the "buy equities" camp aren't using data since 2009, *we're using data since 1898*. You are looking at the last 10-15 years, seeing all the trouble we've had, and missing the bigger picture about why one should invest in productive assets. 

http://1.bp.blogspot.com/-xRFAFQWH0Ls/USawRhzgixI/AAAAAAAACnw/YSZL0I_-CXU/s640/Dow-1898to2013.PNG

(Ignore the chart's commentary, this is the best I could find on google images of logarithmic dow jones since 1898.)



HaroldCrump said:


> James4, _when_ was the market on "solid" grounds in your lifetime?


You put it better than I could have.


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## sags (May 15, 2010)

No it was not I who discounted historic results, but those who said using decades of results ending in 2009 was unfair to equities.


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## james4beach (Nov 15, 2012)

HaroldCrump said:


> James4, _when_ was the market on "solid" grounds in your lifetime?


Before approximately 1995.

That's around the time Greenspan started his bubble-blowing magic and those policies (Bernanke continuing) have persisted ever since. The market has been abnormal from around 1995-today. *The mid 90s is the point at which the Federal Reserve began reckless credit stimulus.* I call it the start of the 'credit bubble'.

Also if you look up the Shiller CAPE charts you'll see that valuations changed markedly right around that mark, 1995.

You will _also_ observe in historical charts of credit, that credit started really running away around that same point.
http://research.stlouisfed.org/fred2/series/TOTALNS

There are many other metrics that changed notably in the mid 90s. Just go and ask any macro economist.

Another notable shift starting around '95 was the growth of the financial sector. It started ballooning, from (previously) just a small part of the economy to a giant part of the American/Canadian economy. This goes hand in hand with credit and monetary stimulus. And with it came the ballooning growth of derivatives; new types of financial engineering that revolutionized finance.

I'm talking about structural changes that began around '95.

If you think there's anything remotely normal about todays markets, versus say the 80s or early 90s, I think you're way out of touch. Never before have the central banks been involved to this degree in capital markets. Low interest rates have happened before, but only for brief periods. Not like this.

Just because it's a long period (20 ish years) doesn't mean I'm wrong. It's such a long period that it encompasses most working professionals' entire careers. But I think there's a lot of evidence that this is not normal, and the departure from normalcy started in the mid 90s.


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## GoldStone (Mar 6, 2011)

HaroldCrump said:


> James4, _when_ was the market on "solid" grounds in your lifetime?


Two of my favourite sayings about the stock market:

_"Jump in the time machine. Travel back to a random day. Whatever the day, you can always find a solid reason to be 100% in cash."_
-- Author Unknown (I paraphrased)

_"The key to making money in stocks is not to get scared out of them."_
-- Peter Lynch

BTW, Egyptian stock market is up 50% since the mass riots in June. Egyptian economy & capital markets must be in solid shape.


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## donald (Apr 18, 2011)

Little off topic and I ain't in the Convo here but,anybody ever read taleb?I just started reading his book black swan(interesting,highly recomended IMO)almost nails why its useless to try to predict this at that.


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## HaroldCrump (Jun 10, 2009)

james4beach said:


> Before approximately 1995.


Have you forgotten the recession of 1990 - 1991?
It cost George H. W. Bush his presidency.
"_It's the economy, stupid."_ - remember that?

If you are saying the stock market is not a good indicator for the underlying economy, then the period from late 1980s to about 1992 wasn't great.

Net it boils down to a period of barely 3 years or so (between 1992 and 1995) when you claim the stock market was rational and not overvalued.
Therefore, over a period of nearly 30 years, you would have been invested in the stock market for only 3 years or so?

In a broader sense, is your strategy to time the markets by jumping in and out based on CAPE ratios?


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## Longwinston (Oct 20, 2013)

sags said:


> No it was not I who discounted historic results, but those who said using decades of results ending in 2009 was unfair to equities.


I'm not here to convince anyone that buying and holding quality equities that pay a consistent dividend is the best way to produce wealth over the long term. I know it to be a fact. Denying this is akin to denying the existence of compound interest. Do what you like with your money. I hope you save a lot, you will need to.

Best of luck all


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## humble_pie (Jun 7, 2009)

james4beach said:


> ... there has been no major recovery of fundamentals. Again I'm talking all about macro conditions here, not the stock index. Those conditions in 2008 persist today ... bad debts, excessive leverage, high consumer debt, structurally high unemployment, lack of high paying upper middle class jobs.
> 
> The way I see it: the economy crumbled in 2007/2008. On fundamentals, it hasn't yet recovered today (this is why we still have emergency low zero interest rates). *And that's why I'm not comfortable investing in risky asset classes like stocks.*
> 
> The market was on shaky ground in 2007, and it's still on shaky ground today.



oh dear, here we go again. You're saying stocks are too risky to own? no, wait, only days ago you said your personal portf is 50% stocks, 50% fixed income.

no, wait, in another recent post you said personal portf is 51% stocks, 34% fixed income, balance not disclosed.

but prior to that - up until a few months ago - you always used to preach 10% stocks, 90% guaranteed fixed income. 

what is happening with the above quote? you only recently switched into heavier stock weighting at recent market highs; are you just now dumping those recent stock purchases now & moving everything back into GICs & other guaranteed fixed income?

please let us know, we await with bated breath ...


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## scomac (Aug 22, 2009)

james4beach said:


> Just because it's a long period (20 ish years) doesn't mean I'm wrong. It's such a long period that it encompasses most working professionals' entire careers. But I think there's a lot of evidence that this is not normal, and the departure from normalcy started in the mid 90s.


So what is normal then and how will we know it when we see it? If the most recent near twenty year period is a _departure from normalcy_, then define what normal would look like.


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## sags (May 15, 2010)

Longwinston said:


> I'm not here to convince anyone that buying and holding quality equities that pay a consistent dividend is the best way to produce wealth over the long term. I know it to be a fact. Denying this is akin to denying the existence of compound interest. Do what you like with your money. I hope you save a lot, you will need to.
> 
> Best of luck all


I think we are talking past each other here.

If people have a long timeline until retirement, I agree the stock markets would normally return significantly higher returns than GICs. I would encourage people to invest in the stock market long term.

What my thesis is............that most of the money is held by people who don't have long timelines left, and therefore for most of the people with the most money to invest.........the stock market could be a dangerous place.

For them, risking a significant decline in their portfolio while on the cusp of retirement, or already retired, is risky business which could be life altering.

Invest from young ages......in the stock market if a person is competent, but know when to transition into risk free investments.

Finances in retirement have changed over the past few years. People are retiring while still owing mortgage and other debt. Their retirement plan is to leave their money exposed to the risk in the stock markets.

That is a considerable change from the old "pay off your home and debts", and hold your retirement savings in safe GICs.

Central bank interference to keep artificially low interest rates, has pushed people into higher risk.


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## Sampson (Apr 3, 2009)

sags said:


> What my thesis is............that most of the money is held by people who don't have long timelines left, and therefore for most of the people with the most money to invest.........the stock market could be a dangerous place.


The stock market has always been a dangerous place. Sags, no one is arguing against the benefits of diversification (at least I don't think anyone is).

In fact, most of the "equities outperform in the long run" camp have already pointed in that direction several pages ago. However, when you post how and try to argue for a GIC only approach, the previous 5 pgs are bound to come in response. From my memory of this entire forum, not one individual has ever advocated for a 100% equity allocation. Some people have it, but everyone recognizes that the volatility is not for everyone, whether near retirees or those that will make irrational decisions after watching their portfolios drop.

You continue to tout all equity portfolios as volatile, but you are the only one using these as an example.


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## none (Jan 15, 2013)

My son is 100% equities until he turns 8 and then his bond allocation increases as he approaches 18 (for his RESP).

I'm following this: http://canadiancouchpotato.com/2010/11/05/taking-risk-in-an-resp/

Including government grants, he's up ~50% in the last 2 years (I got lucky on a dip when I transferred cash from RBC to TD)


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## Oldroe (Sep 18, 2009)

A hit to our overall equities value has no effect on our retirement income. A dividend hit does. 

So to really have any effect the market would need to crash and then stay down long enough to lose all dividends in all 10 stocks/reit we own that are the best most solid company's in Canada.

We are taking that chance.

I only hold cash and gic for opportunity's.


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## Pluto (Sep 12, 2013)

james4beach said:


> So I guess you would say the stock market was a wise forward looking predictor in 1999 and 2007 ?


Not really sure what you are referring to in 1999. You seem to be implying that it didn't indicate something that it should have. You need to specify the "something" in order to respond to this. 
Again, in 2007, I'm not sure what you are referring to. It is obvious that by 2008, the market tanked. After that the economy tanked. Obviously, the market lead the economy. That's why it is one of many economic *leading* indicators. 

The stock market looks forward 6 to 18 months, and goes up or down depending on what it sees in the future. 
Stocks prices, in essence, are driven by earnings. So what the market looks forward to is earnings of companies. If it sees earnings increases relative to the present, the market typically goes up, assuming it hasn't got way ahead of itself. In the later case, it can consolidate, pull back, or insanely go up and form what people call a bubble. (Incidentally, there is no leading economic indicator that is 100% accurate.) 

And speaking of bubbles, I don't see the "bubble" right now, assuming the meaning of bubble is asset inflation.
US real estate just went through massive deflation. No bubble there that I can see. 

US stocks: in march 2009, the S&P 500 was at 1996 levels. Seemed to me that any asset inflation had been totally wrung out. Now we have the S&P trading at about 16 x next years earning. Seems in a normal range to me. 

Gold, is, I think, inflated. I think it is worth about 950 - 1000, but it is coming back to reality. I think the decline in gold is foreshadowing a higher/stronger US dollar, and tame inflation. And how would the dollar get stronger if not via higher interest rates? Too, how far ahead do markets look? About 6 to 18 months. Lower gold prices is roughly predicting higher rates in 6 to 18 months. The declining gold market is also implicitly saying, "We were too worried about the us economy. We are getting over our excessive fear, so we are sellers". 

Energy: Canada and the US are flooded with oil and natural gas. Given ample supply, I don't see much prospect for asset inflation there. 

Fertilizers: Totally washed out on potash price. Seems to me the the last of that asset inflation just evaporated.
And so on. 

So where the heck is the bubble? The Twitter ipo sure looks like a bubble, but that doesn't mean the entire market is in a bubble. The twitter ipo does suggest, however, that lots of investors are of the mentality to do foolish things, and could be a sign of more foolishness to come before this bull is over. 

In my opinion, one of the safest times to buy in my life was the first week of march 2009. At that time the S&P was back at 1996 levels. To me, it was a no brainer, assuming I bought quality. Of course, I was assuming we were not heading into a depression. But even if we were, stock prices seemed to be already at depression levels, so if I was wrong, I didn't anticipate losing much. One individual who inspired such faith was Sir John Templeton. His main strategy was to buy at the time of maximum pessimism, since that's when value is abundant. He achieved 20% annual compound gains for decades. 

In times of maximum pessimism there is a fear premium to be had for those who want it. Take Potash corp for example. Back when the sky was falling, in Dec 2008, the price went as low as 17.80. But today, just after the cartel fell apart, the price range is around 29 - 33. The % increase 17.8 to 33 is 85%. If POT is fairly priced at 33, the difference between that and 17.8 0 is purely a fear differential. According to Templeton, the fear differential was his bread and butter. Too, he didn't have a fear of debt. When he was young, he borrowed money from his boss to buy stocks during a bear market, and he made out like a bandit. 

But you give a mixed message. You don't trust the market due to economic problems, yet you are 50% in stocks. I get the feeling that if the economic problems get solved to your satisfaction, you will go more into stocks, maybe even 100% right near a top. Reality is, I think, as the economic problems get solved, and people feel more secure, you should be cutting back on stocks.


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## mbmb (Oct 17, 2012)

none said:


> My son is 100% equities until he turns 8 and then his bond allocation increases as he approaches 18 (for his RESP).
> 
> I'm following this: http://canadiancouchpotato.com/2010/11/05/taking-risk-in-an-resp/
> 
> Including government grants, he's up ~50% in the last 2 years (I got lucky on a dip when I transferred cash from RBC to TD)



my son is 100% equities for a year with 20% gain, plus a small portion in GIC which I can not switch into equities due to supplemental grant given during a year of low income
thank you for pointing the Couch potato scheme, I had an old one with 100% equities until the age of 10.


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## Cal (Jun 17, 2009)

I don't think the market will be affected as much as the RE market will here in Canada when rates rise. Tapering will be followed by rising rates.

Yes, I do think the markets will have a hissy fit, then investors will collect themselves and come to their senses as they realize companies are making money and the economy is actually recovering.


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## Rusty O'Toole (Feb 1, 2012)

donald said:


> Little off topic and I ain't in the Convo here but,anybody ever read taleb?I just started reading his book black swan(interesting,highly recomended IMO)almost nails why its useless to try to predict this at that.


I read that book. I was impressed with his ideas although none of them were really new. One thing bothered me. When he gave an example and it was something I knew about he always got it wrong. Usually had the facts wrong and always misinterpreted what was going on.

I agree with his thesis (don't get the swell head and think you know all about investing or something will bite you in the ***) but the rest I would treat with caution.


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## james4beach (Nov 15, 2012)

HaroldCrump said:


> In a broader sense, is your strategy to time the markets by jumping in and out based on CAPE ratios?


No my broader strategy is to avoid the market when there are systematic problems (as there are currently) because it leads to an unstable and unreliable environment for putting capital to work. Sure the stock market may go up and I may miss those returns ... I accept that.

Not avoiding the market because I'm trying to time my returns or because I expect a crash, but because I think it's fundamentally a bad idea to entrust your savings (_the manifestation of years of hard work_) into a system that is unable to stand on its own two feet. This is not a free market. It's not capitalism; not even close.

Just as I won't walk across a bridge that's crumbling, I won't pour money into economies that are barely kept alive with zero interest rates and accounting shenanigans (suspension of mark-to-market).

I'm already hedged in case I'm wrong. I've still got half my investable money in stocks. If I'm wrong, I still enjoy some market returns. I hope you've all got contingency plans in case you're wrong.


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## jcgd (Oct 30, 2011)

I don't see it as walking across a bridge that is crumbling. It's walking across a bridge that has been repaired yet still has all the construction signs out, so most people don't trust it. When the signs are gone, the bridge will be full of people, and then you are with the crowd, instead of early.

Then you want to get off the bridge when it is becoming old, weak, and over capacity... before it crumbles. Wait till it fails and is fixed and get back on before it's opened again.


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## james4beach (Nov 15, 2012)

What makes you think it's been repaired?


 Have they dramatically boosted the capital levels of banks? No, only boosted capital a tiny bit.
 Have they resolved accounting valuation of broken derivatives and bad loans? No in fact they (FASB) allowed companies to totally ignore the problem, by suspending mark-to-market accounting
 Have bad loans in the US been resolved? No they just got swept onto the federal balance shset
 Have bad loans in Europe been resolved? LOL ... no. We're just pretending it's not a problem
 Have regulators clamped down on risk taking by large commercial banks? Not in the last
 Has the Canadian consumer reduced their leverage? Um no in fact debt and personal leverage is at new highs

The way I see it, they haven't repaired anything. They slapped a new coat of paint on the bridge and threw a parade with ticker tape and balloons to give the perception that the foundation has been repaired.


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## jcgd (Oct 30, 2011)

I was just trying to make the analogy fit. So you think that when all these issues are resolved, when securities are priced to reflect the stability and reduced risk, only then would be the time to invest in riskier securities? Isn't that the definition of buying high?


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## james4beach (Nov 15, 2012)

I'm not waiting for securities to reflect the stability, I want to see that positive structural changes are happening or under way

At this point I'd just be happy to just see an indication that policymakers actually want to fix anything


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## Pluto (Sep 12, 2013)

james4beach said:


> [/LIST]
> 
> The way I see it, they haven't repaired anything. They slapped a new coat of paint on the bridge and threw a parade with ticker tape and balloons to give the perception that the foundation has been repaired.


You are too early in the bull market for this comment. There is still too much worry, by too many talking heads. When we are closer to a market top, your comment would be accurate. 

I'd like to suggest something: Get two historical graphs. One graph of US unemployment going back some decades. Another of the S&P. Compare them. You will find that high unemployment, correlates highly with market bottoms, and low unemployment correlates highly with market tops. That means that a booming, low unemployment economy is bad for the market, especially after the Fed has raised rates to cool it off. I bet dollars to donuts, this time it isn't different. The easy money is always made by those who load up on stocks around the time unemployment has peaked, then they ride the wall of worry up. When there is little or no worry, usually when unemployment is low, they lighten up on stocks and wait for the inevitable bear. Buy on bad news, sell on good news.


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## dogcom (May 23, 2009)

Everything is in for a market top except for the the ma and pop investors who are just starting to arrive. I think we may see a blow off top as we suck these guys in and then the bottom falls out.

The Fed can't taper because long bonds will stop that from happening. The economy can't really improve because long rates will go up. The dollar can't go up to fast or everything will decline and QE will have to be pumped in to keep it in line. The dollar also can't fall a lot because the world will lose confidence in the Fed ponzi scheme and dump dollars in a stampede so the downside will have to be kept in line as well.

In the old days the market would cheer rising interest rates as a sign that the Fed was in control of inflation as the economy heated up. It was only after the short rates created an inverted yield curve that the party would end usually within a year and the Fed would start to bring rates down until the economy started to recover again. This time however the Fed isn't raising rates and instead printing money to control the bond market and stocks are following in correlation to the money printing. 

To keep this printing up the Fed must also manipulate gold and silver lower along with other commodities to keep the Chinese and such happy with bargains to purchase so they don't dump the dollar. Of course the bought and paid for mainstream media is also instrumental in cheerleading all information the Fed needs to feed everyone along with pumping the jobs report and so on so the Fed can save money and keep the confidence that is needed to keep the game going.

So yes the stock market can go much higher but keep in mind that it is all smoke and mirrors and a game that could end at any time. When the game ends everything will be revealed and we could see a stock market collapse along with bank bail-ins and all sorts of schemes to take your money. My only advise is to make sure you don't leverage or borrow to invest and make sure you have access to some money in case of bail-ins or bank holidays.


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## james4beach (Nov 15, 2012)

dogcom said:


> Everything is in for a market top except for the the ma and pop investors who are just starting to arrive.


I think ma and pop are already back in. Luke Montgomery at Sanford C. Bernstein & Co. said last week that

U.S. households, whom some expect to lead the shift into stocks, are already “modestly overweight” in equity holdings compared with their average position since 1951, Montgomery said. Pension funds are “sharply overweight” in stocks, he wrote.


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## kcowan (Jul 1, 2010)

When I see Twitter trading for $40+, I know we are at 2000 all over again. Another "new economy".


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## RedRose (Aug 2, 2011)

Dogcom:


> So yes the stock market can go much higher but keep in mind that it is all smoke and mirrors and a game that could end at any time. When the game ends everything will be revealed and we could see a stock market collapse along with bank bail-ins and all sorts of schemes to take your money. My only advise is to make sure you don't leverage or borrow to invest and make sure you have access to some money in case of bail-ins or bank holidays.


So if I am half invested in the stock market now should I be pulling out?


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## andrewf (Mar 1, 2010)

^ You should set your asset allocation according to your risk tolerance and financial goals. Depending on your age, you may want a smaller equity allocation than 50%.


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## underemployedactor (Oct 22, 2011)

Hey Dogcom, enjoyed your pithy précis of the market. Sad to say I rather agree, but am buoyed by the knowledge that there is money to be made on the way down as well as up.


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## dogcom (May 23, 2009)

Your welcome underemploy.

Redrose the market can go up a lot as long as the Fed has its back, until the bond market says enough is enough. So if bonds and the dollar are under control it should be able to stay up with small corrections as we move along.


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## jcgd (Oct 30, 2011)

kcowan said:


> When I see Twitter trading for $40+, I know we are at 2000 all over again. Another "new economy".


Hmm... When I see twitter trading for 40+ I ask how many shares are outstanding because we all know the share price indicates nothing about valuation.


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## jcgd (Oct 30, 2011)

I don't get it. Why try to time the top? You'll make more money timing the bottom anyways, which is still nearly impossible. At least you know you are buying cheaper than before when you clearly see the market top in the rear view mirror. Missin the run ups will likely be worse than riding the downs.

Perfect timing:
http://www.thereformedbroker.com/2013/11/12/everything-you-need-to-know-about-stock-market-crashes/

I'm not saying I don't think a crash or correction is coming, I have no clue. And I don't really care. But I'll deal with it when it happens and try to use the opportunity to make a small fortune. Until then I'll ride the bull, thanks.


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## Pluto (Sep 12, 2013)

dogcom said:


> Everything is in for a market top except for the the ma and pop investors who are just starting to arrive. I think we may see a blow off top as we suck these guys in and then the bottom falls out.


Right on. Dick and Jane first time investors are on the way in. The rising market, and their initial stock winnings will prove to them they did the right thing. Then more will pile in. They will get brainwashed by the buy and hold strategy. Then they will get eaten for breakfast. Totally devastated by their losses when the bear returns many will not even open their statements from their brokers. They will be totally unprepared to buy low, sell high. 

P.S. Buy and hold can work, but not if one come late to the party.


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## blin10 (Jun 27, 2011)

Dick, Jane and every grand ma out there DO NOT EFFECT markets, retail investors do not matter, it's the big institutions/hedge funds who run the show... markets are not going up because of every Dick and Jane out there lol



Pluto said:


> Right on. Dick and Jane first time investors are on the way in. The rising market, and their initial stock winnings will prove to them they did the right thing. Then more will pile in. They will get brainwashed by the buy and hold strategy. Then they will get eaten for breakfast. Totally devastated by their losses when the bear returns many will not even open their statements from their brokers. They will be totally unprepared to buy low, sell high.
> 
> P.S. Buy and hold can work, but not if one come late to the party.


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## physik3r (Sep 10, 2012)

Interesting subject! I'm pretty new to the market (80% of my net investment has been in the last 3 years) but I'm not concerned with a downtown for two main reasons:

1. My investment horizon is long (30+ years)
2. I'm well-informed about market trends and (to a degree) expect a correction. I guess I should thank all of you for this as I'm learning a ton just by listening to you


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## humble_pie (Jun 7, 2009)

physik best to not let paranoia destroia, though each:


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## james4beach (Nov 15, 2012)

Pluto said:


> P.S. Buy and hold can work, but not if one come late to the party.


That's a good observation. Contrary to popular mainstream/industry thinking (and let's remember they're generally trying to sell us products)...

The charts and historical data I've seen show that *timing* is a critical element in stock market returns. The baby boomers are the perfect example. They happened to start their working careers around the 80s (during very low stock valuations) so anyone who got in during this period basically joined the greatest bull market in history, right at the start. *That's why boomers got rich off investments* and that's why they're on these forums strongly endorsing buy & hold and how great stocks are. It worked for them and they think it generalizes to all cases, all times.

So that's the boomers: had the dumb luck of getting in at the start of the longest, greatest bull market in history. Buy and hold worked for them.

Then you have my age group, starting to earn income/invest around 2000 - right at the peak. My time period, 2000-2013, shows a very different experience in stocks. Tremendously volatile. Two market crashes and severe recessionary periods. Most of those years with zero gains or steep losses. If I had done "buy & hold" in this period I would be severely disappointed. In fact even as of today, annualized TSX returns in this period are less than zero-risk fixed income returns! And that's if you used the most efficient, low fee product.

I'm being generous even in my description of 2000-2013 because many large cap stocks (tech stocks, Nortel, and of course all US banks) totally crashed in this period and never recovered. Many stock investors suffered negative returns in this period and never made their money back. *They would have been better off in cash.*

So there's a 13 year period with a totally different stock experience. Timing is everything.

physik3r: Yes, very long term, buy & hold does appear to work... but you have to stay invested for over 20 years. 10 years won't cut it. I think the time horizon has to be over 20 years and that means you don't need the money before 20 years is up. So you can't dip into the stocks for emergencies, home purchases, etc.

This is why I get so worried about older people and retirees who are on this forum, so heavy in stock exposure. Many of these people will probably have to sell their investments in 10 to 20 years, but certainly don't have a 20+ year horizon. I think that makes stocks a bad choice. Yet many retirees have loaded up on dividend stocks (which are, of course, still stocks). I think that's a bad idea for older folks.


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## james4beach (Nov 15, 2012)

I'll also add that this idea that buy & hold "always" works over 20+ years, is nothing more than an empirical observation by looking back at historical American stock returns and assuming the same going forward.

That kind of analysis conveniently ignores the case of Japan, where the stock market produced horrible returns for 30 years.


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## humble_pie (Jun 7, 2009)

james4, wondering what age group u are in today?


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## james4beach (Nov 15, 2012)

Well as I said before, I'm in my 30s. I graduated from high school around 2000. People my age +/- 2 years will have gone through the same experience as me... stock market has produced horrible returns, and probably negative returns to date once you consider companies that went bankrupt

How about you, humble? Did you by any chance start investing around 1980s?


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## humble_pie (Jun 7, 2009)

really? somehow my portf doubled over this time frame


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## james4beach (Nov 15, 2012)

Then you should start a hedge fund, or sell your system to the banks! Because they sure as heck didn't come out ahead in markets either.

Also methinks your strategy is based on Canadian banks stocks, and you got really lucky that when they become insolvent in 2008 that the government silently bailed them out wholly, instead of letting you the equity holder eat the losses (which is what happened in the USA)


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## humble_pie (Jun 7, 2009)

alas the system can't be sold, is not even transferable

it's a combination of poetry, song, celtic imagination plus lots of options


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## humble_pie (Jun 7, 2009)

james4beach said:


> Also methinks your strategy is based on Canadian banks stocks, and you got really lucky that when they become insolvent in 2008 that the government silently bailed them out wholly, instead of letting you the equity holder eat the losses (which is what happened in the USA)



wildly off-base as usual ...


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## james4beach (Nov 15, 2012)

Too bad the system can't be sold. I though your system had to do with bank options because you often talk about option strategies and often remark that Canadian options are not too liquid outside of XIU and the banks (XIU itself being 30% banks)


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## scomac (Aug 22, 2009)

james4beach;

I don't know where you are getting your information from. It appears that you are simply engaging in spreading mis-information to further your talking points. Either that or you have a strange way of interpreting the facts. It's pretty clear to me that I was invested in an entirely different market from 2000-2013 than the one that you are describing above. For starters, while the markets have been volatile and experienced two crashes, it hasn't been a case of _most of those years with zero gains or steep losses_. In fact, there were 4 negative return years in the 14 year period from 2000-2012 inclusive. Contrary to your characterization, the TSX Comp. experienced several years with double digit returns. You then go on to claim: _In fact even as of today, annualized TSX returns in this period are less than zero-risk fixed income returns!_ This is also stretching the truth. From 2000-2012 inclusive the TSX returned 5.42% CAGR. If you really want to compare that to risk free, then you should be talking about T-Bills and they returned 2.61% CAGR over the same period. I suspect, that's not what you meant; so if you choose ST Bond index, the return was 5.20% over the same period. Call it a wash if you will, but that would likely have been generous for the GIC investor. So, the situation isn't nearly as bleak as you are attempting to portray. 

I'm of the "Boomer" generation and most of my stock investing has taken place during the very same period that you have described as: _They would have been better off in cash_.
I did not have the benefit of the run-up in the preceding 20 year period as I was more concerned paying down a mortgage and building a business than I was in any sort of long term savings plan. I can assure you that I have been and am much better off being invested in the market than staying in cash and that difference will be in an order of magnitude...at least!

It's interesting that you feel that for older folks, like myself, investing in stocks is a bad choice. If you are financing a retirement the time frame is going to be substantial. Barring misfortune, it is likely to be anywhere from 20-30 years (or more) for my cohort. This is going to take some equity exposure to ensure the survivability of the portfolio over that time frame. You simply cannot make it work on risk free unless you have an enormous nest egg and plan on living frugally.

Your mistake is that you are looking at a very short period of time to draw all your conclusions about the suitability of investment policy rather than looking at the data from much longer periods that span several cycles. You're projecting your experience well into the future assuming that the current period that you are focused on will continue to be reflected in performance going forward. I would argue that you are the one in the riskiest position especially when factoring that your thinking is based in no small part on what appears to be incomplete and inaccurate information.


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## scomac (Aug 22, 2009)

humble_pie said:


> really? somehow my portf doubled over this time frame


As did mine. It's really not that difficult, but you have to be able to appreciate the power of compounding.


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## james4beach (Nov 15, 2012)

scomac said:


> I don't know where you are getting your information from. It appears that you are simply engaging in spreading mis-information to further your talking points. Either that or you have a strange way of interpreting the facts. It's pretty clear to me that I was invested in an entirely different market from 2000-2013 than the one that you are describing above. For starters, while the markets have been volatile and experienced two crashes, it hasn't been a case of _most of those years with zero gains or steep losses_. In fact, there were 4 negative return years in the 14 year period from 2000-2012 inclusive. Contrary to your characterization, the TSX Comp. experienced several years with double digit returns


I don't care about the several years with double digit returns, I care about total performance from 2000 - now... how did the stock market do over 13 years? You're doubting my claim that the performance has been poor in the period since my cohort entered the working world.

Let's take a look. Stockcharts.com shows me XIU total return from 2000-01-01 up to today is 84.32% in 13.8 years. This is probably the most generous end of my comparison because we're taking the end point at a high, and the start point a full 40% below the 2000 market peak! So I'll also throw in a rate calculated from midway up that market peak ramp, but still not the peak (2000-06-01)

TSX total return, 2000-01-01 through today = *4.53%* annualized [ about same as GICs ]
TSX total return, 2000-06-01 through today = *3.39%* annualized [ much less than GICs ]

How about some American returns? Most people invest in both.

S&P 500, 2000-01-01 through today = *3.20%* annualized [ much less than GICs ]
S&P 500, 2000-06-01 through today = *3.26%* annualized [ much less than GICs ]

Again these comparisons are very generous to stocks, because we're sampling them today near a peak. Now scomac perhaps there's an error in my math but the range of annual returns I see there are 3.20% to 4.53% at the best. _In the most efficient index products possible_. All of them are less than fixed income returns, even less than standard GIC returns.

But it doesn't end there. Because I assist people with portfolio optimization I have seen a lot of real portfolios. Most people have done worse than the XIU & SPY benchmarks. Go to a standard high fee mutual fund and right away your performance is 2% less than these optimal values.

*That puts standard retail investor returns at between 1.2% to 2.5% annualized, over the last 13.8 years.*

Again perhaps my math is wrong, I'm relying on stockcharts. The other thing that happens in real portfolios (and again, I see these in my work) is that people start taking positions in individual stocks. Not everyone of course, and results vary, but it's common to see someone with a position in a tech stock, Nortel or Citigroup or GE, some large cap like that, which absolutely _destroys_ their long term returns. This is very common in my experience, but it's embarrassing to people so they don't go around telling everyone how they stupidly lost money on Citigroup stock.

But leaving that aside.

Compounded, annual returns with dividends included, is pitiful on both the TSX and S&P 500 since 2000.


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## yyz (Aug 11, 2013)

So the Canadian banks were insolvent ?Really
Is the sky falling as well?


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## humble_pie (Jun 7, 2009)

james4beach said:


> (1) Stockcharts.com shows me XIU total return from 2000-01-01 up to today is 84.32% in 13.8 years.
> 
> (2) Because I assist people with portfolio optimization I have seen a lot of real portfolios.



(1) i believe this is not *total* return from XIU, it's rather the price performance return. Missing are the compounded distributions during all of those years.

i've held XIU since 2001, ie almost 12 years. It's a kind of bond proxy for me. XIU is government bondlike in the sense that it'll never go bankrupt, although its price is, transparently, far more volatile.

i paid $11 & change for XIU. Today it's trading at $19 & change. There's your 84%. However, this return doesn't include 12 years' worth of distributions nor does it include 12 years' worth of repeatedly selling call options. XIU's distributions are reasonably fat although its option premiums are pitiful.

(2) this has gone on long enough, so i'll try to say this as gently as possible. James4 i for one am not able to believe that you have seen a lot of portfolios. Nor am i able to believe that you are any kind of professional financial advisor whatsoever.


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## james4beach (Nov 15, 2012)

Humble that 84% does include the dividends. It's a total return. As independent verification go to finance.google.com and plug in TSX index since 2000-01-01. The return up to today is +59%, that's your price return without dividends. This makes sense ... the other approx 2% in annual dividends adding up to a total return of 84%

*84% does include 13.8 years of distributions.* Check your math, humble_pie


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## JamJam23 (Nov 8, 2013)

James, your math is wayyyy off. I hope people aren't seriously taking financial advice from you.

Do this:
Go to morningstar.ca, create a portofolio where you invest $10,000 into XIU on May 1, 2000.

IMPORTANT: Go to "Modify->Dividends/Splits" choose "Reinvest dividends" on all the dividends.

What you end up with:
$25248 (CAGR of around 7%)


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## humble_pie (Jun 7, 2009)

james4 please remember i said option sales too

a *total+* return with all distributions & option sales premiums reinvested would aggregate one original XIU share from 12 years ago at something north of $30 now.

i for one am very happy to have a no-brainer, zero-maintenance, nearly bankrupt-proof equity in my portf that manages to pretty near triple itself over 12 years.

furthermore revenues from this gain are mostly tax-favoured, unlike 100% taxable interest from GICs & bonds.

in addition i don't believe your comparison is quite right, XIU is not the TSX composite index ...


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## james4beach (Nov 15, 2012)

JamJam, how do you give a start date for the portfolio on their web site? Are you sure you're comparing the same time period?

I didn't say dividends reinvested, I said total return including dividends.

(adjusting post due to jamjam editing a number)


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## james4beach (Nov 15, 2012)

humble_pie: point taken on options.

As for the annualized returns, there is a discrepancy somewhere. Stockcharts and google finance agree, but jamjam's number from morningstar disagrees.


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## humble_pie (Jun 7, 2009)

JamJam23 said:


> Go to morningstar.ca, create a portofolio where you invest $10,000 into XIU on May 1, 2000.
> 
> IMPORTANT: Go to "Modify->Dividends/Splits" choose "Reinvest dividends" on all the dividends.
> 
> ...



yes, something like that. Add in a few shekels each year from selling options & Liza Doolittle selling her odds & ends of lavender will end up north of 30k. 

truly, not bad at all. I for one don't believe that GICs came near this, especially when one takes their after-tax returns into consideration.


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## humble_pie (Jun 7, 2009)

james4beach said:


> As for the annualized returns, there is a discrepancy somewhere. Stockcharts and google finance agree, but jamjam's number from morningstar disagrees.


a scarring fact about data bases is that they pick up errors from each other. Often they sell data to each other.

morningstar is said to be highly reputed.


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## james4beach (Nov 15, 2012)

Good point about database errors. I will look at the morningstar data closer, though I logged in and so far can't find out where I can enter a 'start date' on my portfolio.

I did pull up a morningstar chart on XIU since 2000-01-01 and it shows 55.65% in price terms, no dividend effect (3.26% annualized) without dividend. Haven't seen the performance with dividend yet.

But using the average during this period of 2% dividend yield that still gives 3.26% + 2% = 5.3% annual XIU return... anyway that's just an estimate

The reason I want to see performance on XIU is that the ideal Index is nice and all, but the question is what can an investor _actually_ achieve.


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## JamJam23 (Nov 8, 2013)

james4beach said:


> JamJam, how do you give a start date for the portfolio on their web site? Are you sure you're comparing the same time period?
> 
> I didn't say dividends reinvested, I said total return including dividends.
> 
> (adjusting post due to jamjam editing a number)


You go to "Add Holdings" and choose the date, there is a little $ sign next to "Purchase Price", if you click that it will auto-fill with the closing price that day (14.35 on May 1, 2000)

EDIT:
To go into more detail, then I just do 10000/14.35 = 696.864. So I just put that number in the # of shares.


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## Spudd (Oct 11, 2011)

Here's a chart for TSX total return:
http://www.theglobeandmail.com/globe-investor/markets/indexes/chart/?q=TSXT-I

Dec 31, 1999 - 17961
Nov 13, 2013 - 39269

Using XIRR I get a total return of 5.8% annualized.


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## JamJam23 (Nov 8, 2013)

humble_pie said:


> a scarring fact about data bases is that they pick up errors from each other. Often they sell data to each other.
> 
> morningstar is said to be highly reputed.


I normally use morningstar for my research because they let you reinvest dividends, Google Finance has dividend tracking, but it just adds them to cash.


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## scomac (Aug 22, 2009)

james4beach said:


> I don't care about the several years with double digit returns, I care about total performance from 2000 - now... how did the stock market do over 13 years? You're doubting my claim that the performance has been poor in the period since my cohort entered the working world.


You don't read very well do you? I already told you what the returns were from 01/01/2000 until 12/31/2012 inclusive. However, You don't know me, so trust is an issue with you, so you require proof. I'll stick with something I have more "trust" in than Stockcharts.

Go to the Asset Mixer Tool at the Stingy Investor website. I know the owner personally and his data is accurate. The returns I quoted can be confirmed by plugging in the start and end date and selecting 100% for the asset class of your choice. As far as annual returns that you care nothing about, you can peruse the numbers for all the major asset classes going all the way back to 1970 for the major asset classes at the Periodic Table of Annual Returns.


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## humble_pie (Jun 7, 2009)

Spudd said:


> Here's a chart for TSX total return:
> http://www.theglobeandmail.com/globe-investor/markets/indexes/chart/?q=TSXT-I
> 
> Dec 31, 1999 - 17961
> ...




it was XIU, though, not tsx total return that was under discussion.

spudd, might u be able to work up total return for XIU? would appreciate so much.

again, the results will be privy to reasonable doubt for the simple reason that the serving data base might reinvest all distributions & then compound onwards. Or it might not "reinvest," it might merely use distribs to adjust the cost base (there is a small annual distrib in XIU that serves to adjust cost base *up* as i recall)

all these variations are why i often rough up figs ...


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## peterk (May 16, 2010)

Tracking a lump sum over 13 years seems kind of useless to me... or am I missing something? No one is just going to drop 10k into XIU, stop investing, and come back 13 years later to see what's up! I mean I know that's how you calculate a return over a period of time, but it just seems pointless to me.

I would be far more interested in seeing $1000/month invested every month in XIU over 13 years, and what that $156,000 turns into, after dollar cost averaging and dripping, in 2013. THAT is a useful number to me.


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## andrewf (Mar 1, 2010)

^This can be done pretty easily using Yahoo's historical price quotes.


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## Spudd (Oct 11, 2011)

humble_pie said:


> spudd, might u be able to work up total return for XIU? would appreciate so much.


Sorry, no clue how to do that!


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## humble_pie (Jun 7, 2009)

OK here we are right back at the beginning of the argument except we've added a 3rd faction.

over here is the army of rigid militiamen who say that only indexation will work in the end, because everybody else is going to market-time themselves into the garbage can.

then over there is the mob of ill-clothed wild-eyed ragamuffins who insist they're making more money with their dirty speculations.

now we have a 3rd camp, with only one member so far, but he's noisy enough for an entire team. He says GICs & short-term bonds rule. If nervous, hoard gold & cash.

_let a hundred flowers bloom
let a hundred schools of thought contend
- chairman mao​_​


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## jcgd (Oct 30, 2011)

Don't forget the astrologist theologian.


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## mrPPincer (Nov 21, 2011)

Spudd I'd be careful about putting too much stock in the globe & mail's numbers anyways.
Always go to the source. 

Recently I've relearned this lesson.
G&M said that TDB902 (e-series s&p500) has an mer of 0.55% (wrong), so when I was readjusting equity exposure I sold that one, (the other reason being it was in between TDB903 and TDB908 in corelations).
Mistake was in not double-checking with TD's site to verify.

MER on TDB902 is actually 0.35 as mentioned recently in this thead 
http://canadianmoneyforum.com/showthread.php/16592-TD-e-Series-Dow-Jones-Avg-or-U-S-Index-e
which actually is what brought my attention to it (thanks Siwash btw  )

I'll prolly scoop up some TDB902 again when the correction happens.


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## underemployedactor (Oct 22, 2011)

humble_pie said:


> _let a hundred flowers bloom
> let a hundred schools of thought contend
> - chairman mao​_​


I preferred you quoting Ray Davies of the Kinks up thread than quoting The Chairman who, rather than having schools contend, preferred to close them for a generation.
_if you go carrying picture of chairman Mao
You ain't gonna make it with anyone anyhow_


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## Pluto (Sep 12, 2013)

blin10 said:


> Dick, Jane and every grand ma out there DO NOT EFFECT markets, retail investors do not matter, it's the big institutions/hedge funds who run the show... markets are not going up because of every Dick and Jane out there lol


blin10,

I fear you missed my point, and I'm happy you pointed out that retail investors to not effect prices. There was no intent on my part to make any such claim, and in fact, I didn't make any such claim. You are simply assuming that there was a claim that retail investors effect prices. 

Dick Naive, and Jane Newbie are important to me because when they start getting bold and pile in to the market it helps to tell me what stage of the bull market we are at. They come in at a later stage, when they feel safe. (TWTR hysteria and better job numbers are the types of events that embolden them, even though it is a false sense of security.)


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## Pluto (Sep 12, 2013)

james4beach said:


> I think ma and pop are already back in. Luke Montgomery at Sanford C. Bernstein & Co. said last week that
> 
> U.S. households, whom some expect to lead the shift into stocks, are already “modestly overweight” in equity holdings compared with their average position since 1951, Montgomery said. Pension funds are “sharply overweight” in stocks, he wrote.


Thank you for that information. As as the markets go higher, Ma and Pa will get more bold and add more. Eventually the pension funds and other institutions will cream Ma and Pa with a tsunami of shares that drive prices down.


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## CanadianCapitalist (Mar 31, 2009)

james4beach said:


> I don't care about the several years with double digit returns, I care about total performance from 2000 - now... how did the stock market do over 13 years? You're doubting my claim that the performance has been poor in the period since my cohort entered the working world.
> 
> Compounded, annual returns with dividends included, is pitiful on both the TSX and S&P 500 since 2000.


I started investing in February 2000, mostly in stocks, right before the S&P 500's previous peak. The first year I owned mostly tech stocks like Nortel, JDS, Yahoo, Intel etc., so the returns on those initial investments were very poor as you can imagine. Including those investments, the rate of return so far is 7.5 percent. Sure the portfolio has losers but I also picked up some winning stocks in those initial years.

Another example: I have a Group RSP at work. Started in May 2005. Money is added regularly every paycheck to a Canadian Equity Fund, MER of 0.8 percent. Rate of return: 8.1 percent since inception.

Yet another example: I track a real world portfolio started in Sept. 2007 and adding $1,000 every quarter. XIRR is 8.8 percent. Latest report is here:
http://www.canadiancapitalist.com/sleepy-mini-portfolio-q3-2013-update/

IMO, the important thing with stocks is to keep investing regularly, especially during bad years. And keep costs as low as possible.


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## Pluto (Sep 12, 2013)

james4beach said:


> That's a good observation. Contrary to popular mainstream/industry thinking (and let's remember they're generally trying to sell us products)...
> 
> The charts and historical data I've seen show that *timing* is a critical element in stock market returns. The baby boomers are the perfect example. They happened to start their working careers around the 80s (during very low stock valuations) so anyone who got in during this period basically joined the greatest bull market in history, right at the start. *That's why boomers got rich off investments* and that's why they're on these forums strongly endorsing buy & hold and how great stocks are. It worked for them and they think it generalizes to all cases, all times.
> 
> ...


You make very good points comparing "buy and hold" vs cash. 

(Some baby boomers were already in stocks in the 1970's, and believe me, the late 60's to 1983 were every bit as trying as the 1999 to present period. On top of crappy stock returns, they had very persistent high inflation. Cash was a loser because inflation was at or higher than interest rates during many of those years plus the S&P was flat over some 10 years or more. The Bear market in 74 was brutal and even many pros got whipsawed, not to mention the downturn in 82 - 3.) 

I don't believe in buy and hold myself, at least not literally. And the buy at *anytime* and hold approach is even worse. I believe the market can be timed, only not with absolute precision. I think the fact that timing cant be done with absolute precision is being used by marketing and sales people to brain wash Dick and Jane Naive into buying funds on an automatic calendar basis. That is not in the best interest of Dick and Jane, rather, it is in the best interest of fund managers and companies who desire a predictable and steady stream of buyers of their units. 

My advice is the same as Templeton's advice: Buy at the time of maximum pessimism. That is generally what Buffett does, but he uses different terminology. Buffett buy when he sees value. When does he see value? Value is most abundant at the time of maximum pessimism. 

I believe in timing the market. In 2009 when it came to my attention that Dry Ships was not breathing, had no heart beat, and talking heads said they may as well suspend life support and watch Dry Ships slip quietly into eternity, that was clearly a time of maximum pessimism. I bought stocks on margin and made very easy money. I believe in buy and hold, but not literally. Of the stuff I bought in 2008 - 9, I sold the last this year. 

The point is I time the market. How? Buy at the time of maximum pessimism. Sell into optimism. 
That's buy low, sell high. Too, I am attempting to unbrainwash Dick and Jane Naive. The market can be timed. Buy anytime and hold is a very bad idea. Although I am interested in what Nobel Prize winning economists have to say, when I see maximum pessimism, I buy regardless of what they think. And when I see growing optimism, I get concerned and start to sell.


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## lightcycle (Mar 24, 2012)

Problem with trading on contrarian indicators is how to separate your own confirmation bias when deciding when "maximum pessimism or optimism" occurs. On any given day you can find both bullish and bearish data to support your opinion on whether to enter or exit the market. Getting it right once or twice may imbue a false sense of confidence.

You can still very easily leave money on the table or grab the wrong end of a falling knife.


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## james4beach (Nov 15, 2012)

CanadianCapitalist said:


> I started investing in February 2000, mostly in stocks, right before the S&P 500's previous peak. The first year I owned mostly tech stocks like Nortel, JDS, Yahoo, Intel etc., so the returns on those initial investments were very poor as you can imagine. Including those investments, the rate of return so far is 7.5 percent. Sure the portfolio has losers but I also picked up some winning stocks in those initial years.


CC, those are good returns - certainly.

Getting back to charts (off topic on this thread I realize) but I'm a bit unnerved that the data sources I was relying on may have errors in them. I've seen endorsements of Morningstar from others here on this forum. Personally I have found stockcharts to be reliable, at least going back to 2005 I was able to personally vet some stock data against my proprietary data (taken direct from TSX) and stockcharts matched. CC... what do you rely on for historical performance information for instance when you want to go and look up arbitrary time periods on ETFs?


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## blin10 (Jun 27, 2011)

james, I keep skipping your posts but there's so much to skip, it's becoming annoying for me personally (no offense)


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## james4beach (Nov 15, 2012)

blin are you looking for forums where you only find opinions that align with your beliefs?

We all come in with biases. CanadianMoneyForum members are overwhelmingly _bullish_ investors. I'm not surprised in the least that bearish and critical posts are viewed negatively.

For a simple test of this, go find forum posts where someone makes a claim that a stock or portfolio has performed _well_. Are those claims met with as much blowback as my posts showing _poor_ performance in stocks? Think about that one.


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## blin10 (Jun 27, 2011)

they can be bullish, but they don't write 100 replies in one thread... seems like you want to prove your believes so bad to everyone, but (in my opinion) it just makes you look bad

and I'm sure everyone is not bullish including me, many just understand not to fight trends... for you to be successful you need to know that "trend is your friend" and at this point trend is bullish



james4beach said:


> *CanadianMoneyForum members are overwhelmingly bullish investors. * .


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## GoldStone (Mar 6, 2011)

james4beach said:


> CanadianMoneyForum members are overwhelmingly _bullish_ investors.


I have a balanced portfolio. Am I _bullish_ or am I _bearish_?

It's been pointed out to you _countless_ times that many of us here follow a disciplined investment process that doesn't rely on market forecasts. We don't have a specific view, _bullish_ or _bearish_.

How hard is it to comprehend?

I guess pretty hard, because you keep repeating your _bullish/bearish_ nonsense ad nauseam.

Sigh.


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## james4beach (Nov 15, 2012)

I appreciate all of you participating in the thread and sorry I've exhausted you. It's exhausted me too, we can shut the thread down

blin10: this isn't about fighting a trend, it's not about calling a market top. I keep saying, the economy is not the same as the stock market. I'm just trying to say that I don't think the economy and markets are solid, and I listed the reasons. Personally, I don't like the idea of investing in a market that I think is broken deep inside.

Yes I realize that for many people, an investing strategy is totally separate from economic fundamentals. Fine.

Goldstone: your balanced portfolio is buy-only, right? So is mine. Both you and I think stocks have generally good prospects, long term. But I'm writing here about how I'm very worried about the fundamentals


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## james4beach (Nov 15, 2012)

Maybe I'm just jealous of all you guys. Maybe subconsciously I also wish that I could follow an investment strategy without any concern for fundamentals and macroeconomics


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## blin10 (Jun 27, 2011)

james4beach said:


> blin10: this isn't about fighting a trend, it's not about calling a market top. I keep saying, the economy is not the same as the stock market. I'm just trying to say that I don't think the economy and markets are solid, and I listed the reasons. Personally, I don't like the idea of investing in a market that I think is broken deep inside.


with that mind set you will never make money.. lemme ask you, in 2008 when everything crushed did you think same thing " I don't think the economy and markets are solid" ? I pretty sure you did.. very rare to have solid economy/market, there will always be problems, there will always be crushes


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## blin10 (Jun 27, 2011)

james4beach said:


> Maybe I'm just jealous of all you guys. Maybe subconsciously I also wish that I could follow an investment strategy without any concern for fundamentals and macroeconomics


if everything aligned perfectly (fundamentals and macroeconomics) like you want, you'll be looking at DOW at 30k not 15k... and something tells me if it'll be at 30k you'll be saying how it's overvalued


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## james4beach (Nov 15, 2012)

OK well blin I guess there we have to agree to disagree, because I think fundamentals mean something.

I'm not looking for perfect conditions. But I"m looking for conditions better than what we have now: perpetually zero interest rates and the market getting flooded with Fed liquidity in lieu of any real economic strength. I'm not asking for much, but I'm not going to settle for these conditions


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## dogcom (May 23, 2009)

James4beach it is better to ask if the economy and job picture is as great as the mainstream media says it is then why do we have such low interest rates along with QE. According to what I have heard we should probably be pushing 5 to 6 percent by now with the Fed looking to go higher and the stock market cheering that on.


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## james4beach (Nov 15, 2012)

dogcom said:


> James4beach it is better to ask if the economy and job picture is as great as the mainstream media says it is then why do we have such low interest rates along with QE. According to what I have heard we should probably be pushing 5 to 6 percent by now with the Fed looking to go higher and the stock market cheering that on.


Yes dogcom, that's one of my concerns. As I repeatedly wrote in this thread, the zero rates are an emergency measure... this is what you do in really bad times, not great times.

I agree with you. One has to ask: why do central banks have to keep the policy rate so low, if the economy is in fact so great and banks are so solid?

I knew that the central banks would never raise that policy rate. Bank of Canada has been posturing for years and I knew it. There's no way they're raising that rate and I'm one of the few people around here who has been saying this. You know when I post about GICs and everyone responds and says, why on earth would you buy a 5 year GIC when the BoC is sure to raise rates? Well ... I stick by my forecast, that Bank of Canada is keeping rates low or cutting them further because the economy is in terrible shape. I'm happy to lock in fixed income.


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## Janus (Oct 23, 2013)

james4beach said:


> Yes dogcom, that's one of my concerns. As I repeatedly wrote in this thread, the zero rates are an emergency measure... this is what you do in really bad times, not great times


Correct. And when does the intelligent investor invest in equities - in great times when things are euphoric, or in really bad times when things are dicey?


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## james4beach (Nov 15, 2012)

An intelligent investor buys when things appear to be worse than they actually are in reality -- i.e. the reality is solid. This is akin to buying shares of a company that you know (from fundamental analysis) is solid and has a good future, yet the shares have crashed because things appear to be worse than they actually are. That's an investor's dream.

Right now, it's the opposite. Things appear to be much better than they actually are in reality -- i.e. the reality is poor.

Zero interest rates are one of the "tells" of that poor reality. The stock market is the image, the "appearance" that things are much better. My gut says it's exactly the wrong time to load up on stocks.


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