# Is this a bear market?



## james4beach (Nov 15, 2012)

I know it's impossible to tell until well after the fact, but I'm wondering if we might be in an actual bear market now. Looking at VT for world stocks, it looks to me like a down-trend. I think the more worrying part is that the MSCI EAFE is falling sharply due to the war and worsening business conditions in Europe.

Normally one would say "don't worry, the Federal Reserve will juice the markets and rescue stocks any moment" but they should be raising rates soon.

Or maybe the Fed will now give up, and leave rates alone? It would really be "out of character" for the Fed to actually go ahead with ending QE, while stocks are declining. But if they actually go ahead with rate hikes and ending QE, I cannot see how stocks can possibly go up.


*What I'm doing: *sticking with my existing asset allocation plan. I'm still 31% stocks today, more or less on target. However I do have a strong Canadian equity bias, and they've been holding up very well so far.


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## m3s (Apr 3, 2010)

I think the Fed has to prioritize controlling inflation over rescuing the market here

I also think the US cornering themselves into this tough decision, along with things like the Afghanistan withdrawal, is at least part of the timing for Russia. This looks like an inflection point to me. The world is drastically changing. The fourth turning point is here as the boomers fumble the torch

My favorite commodity play at the moment is sprott physical uranium


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## diharv (Apr 19, 2011)

I thought the economy and the recovery was sound. The stock market is not the economy but just one barometer of it is it not? And a bear market does not necessarily mean a recession does it? I thought that was two quarters of negative economic growth. I didn't think the Fed ever juiced the markets just to rescue stocks. Everything right now is being driven by fear. I heard someone say even the run up in oil is not driven by demand, but irrational fear. This is what is inflationary and may trigger a recession. The guy on BNN last week saying oil is in a multiyear bull run is nuts as we are already on the precipice of demand destruction. I would expect that with all his great posts and obvious intellect that J4B would not think that part of the Fed's job is to prop up the stock market.


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## james4beach (Nov 15, 2012)

diharv said:


> I would expect that with all his great posts and obvious intellect that J4B would not think that part of the Fed's job is to prop up the stock market.


What they did in 2008 (starting QE) and again in 2020 (buying corporate bonds, and amping up QE) came across to me like propping up the market. But the QE programs also benefit the economy, so it's hard to distinguish the two.

To me the more telling one was 2018, when the Fed _only suggested_ they would taper QE. The stock market fell very sharply. There wasn't a recession, and yet Powell immediately back tracked. The only explanation I have of that one is that the Fed was concerned about the stock market.

This idea of the Fed rescuing the stock market started back with Greenspan, and is called the "Greenspan Put". Since then, Bernanke, Yellen, and Powell all seem to be following the same general idea, as far as I can tell.

I don't think I'm the only one who thinks that the Fed routinely rescues the stock market.



diharv said:


> I thought the economy and the recovery was sound.


Yes Canada remains strong, but consumer sentiment in the US is increasingly looking bad and the war in Europe is worsening business conditions over there. So I think an argument can be made that the combination of high inflation + supply shocks + war fears is starting to point things towards a global recession.

6 months ago, everything looked great and the economy was super strong. But things might be changing very rapidly now, and in the efficient market, stocks might be re-pricing for an imminent recession. Look at the US yield curve, it's also very close to inverting.


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## Thal81 (Sep 5, 2017)

My hypothesis right now is we might reach a technical bear market (-20%) soon for the S&P500, but this is going to be short lived because this war can't last for very long. This isn't a superpower starting WW3, this is an crazy man trying to capture his neighbour's territory by using the meagre resources of his poor country and the leftover war toys from a better era. The more this war stretches and the more likely Russia will implode.

Markets are now doing what they always do, they overreact and overcorrect. This war will be over in 2-3 weeks max and we'll be back on the bull train.


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## MrMatt (Dec 21, 2011)

james4beach said:


> I know it's impossible to tell until well after the fact, but I'm wondering if we might be in an actual bear market now.


My position is simple.
Don't care, not selling.

My detailed position is that my individual stock picks are mostly nicely valued profitable companies. I'll likely continue to get my $xk/yr in dividends. so I don't care.
Much of the rest of my portfolio is tech stocks, and I've made so much there I don't really care. For several I've already pared down my position, so even if they drop to zero, I'm at break even. (Apple and Amazon are notable exceptions)

Lots of fear== buying opportunity.


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## kcowan2000 (Mar 24, 2020)

I haven't spent all the money I made last year, so I can ride out an inevitable downturn. Why share my gains with the government?


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## TomB16 (Jun 8, 2014)

james4beach said:


> What they did in 2008 (starting QE) and again in 2020 (buying corporate bonds, and amping up QE) came across to me like propping up the market. But the QE programs also benefit the economy, so it's hard to distinguish the two.


2008 was the first time governments poured money into their stock markets. Prior to 2008, every recession response in my lifetime was to prop up real estate. This is why I had very little in stocks, in 2008. I was 95% R-E. We were not adversely affected by the GFC and it had nothing to do with skill.

I never dreamed we would see governments prop up equity markets. Since 2008, I have been slowly exiting R-E. We have very little left.

When governments stop pouring money on recessions, and they will have to correct their spending addictions at some point, there will be blood running in the streets. The good news is that I might be dead before that happens.

The takeaway from the GFC is that governments will put a bandaid on anything that appears to be flagging with little regard for consequence and no regard for incentivizing bad behaviors.


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## TomB16 (Jun 8, 2014)

Further...

So, we have decided to keep 3 years of spending money in near cash. This is insurance against sequence of return risk. So far, I'm happy with this approach.

But, if the government continues to de-risk the equity markets, I will be carrying a lot of opportunity cost for little reason. It could very easily be that one year of near-cash is more than sufficient. I believe this is likely. Unfortunately, it's a bet I cannot afford to lose so I will continue carrying a big cash buffer.


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## MrMatt (Dec 21, 2011)

TomB16 said:


> Further...
> 
> So, we have decided to keep 3 years of spending money in near cash. This is insurance against sequence of return risk. So far, I'm happy with this approach.
> 
> But, if the government continues to de-risk the equity markets, I will be carrying a lot of opportunity cost for little reason. It could very easily be that one year of near-cash is more than sufficient. I believe this is likely. Unfortunately, it's a bet I cannot afford to lose so I will continue carrying a big cash buffer.


I think planning to sell equities in 1 year to live is risky.

I think 3 years of near cash is aggressive in retirement.


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## Covariance (Oct 20, 2020)

james4beach said:


> I know it's impossible to tell until well after the fact, but I'm wondering if we might be in an actual bear market now. Looking at VT for world stocks, it looks to me like a down-trend. I think the more worrying part is that the MSCI EAFE is falling sharply due to the war and worsening business conditions in Europe.
> 
> Normally one would say "don't worry, the Federal Reserve will juice the markets and rescue stocks any moment" but they should be raising rates soon.
> 
> ...


I'm not counting on the Fed to react to Equity prices, unless the market becomes dysfunctional or goes a lot lower.

Stability of bond market is where I'm focused. It is essential as it is the funding mechanism for mortgages, corporate and government financing and liquidity. It is a matter of fact that equity is of value only if claims to bond holders can be met. As a consequence bringing stability to the bond market, in turn brings stability to equities.

Vol and yields in the treasury bond market, and OAS spreads.


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## james4beach (Nov 15, 2012)

Covariance said:


> Stability of bond market is where I'm focused.


And that's deteriorating too. There is virtually no junk debt issuance happening any more -- it's completely ground to a halt. That's not a healthy indication for credit markets.

In Europe, various CDS contracts have started going a bit nuts as there is uncertainty about what constitutes defaults. And many European banks have exposures to markets which are in turmoil.

It wouldn't surprise me in the least if the Federal Reserve abandons hawkishness and instead comes to the rescue. Maybe they'll keep QE going for example.


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## londoncalling (Sep 17, 2011)

I thought Powell all but confirmed an increase next week. Going back now would definitely come as a surprise. At teh very least they will need to release a plan on ending QE or lose all creditability. I would hope that they at least put an end to QE as we can't keep digging this hole deeper. At a certain point nobody will be able to get out. Alternatively, they could wait until we experience stagflation and a recession and then go to negative rates.


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## james4beach (Nov 15, 2012)

londoncalling said:


> I thought Powell all but confirmed an increase next week. Going back now would definitely come as a surprise.


Sure, no question there's at least one or two increases coming. But what's a 0.50% or 0.75% rate, when inflation is running at close to 10% per year?

I also hope they end QE. This stimulus has been happening since 2008, so that's 14 years now. I'll believe they end QE when I actually see them shrink their balance sheet.


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## Covariance (Oct 20, 2020)

Where it sits at the moment I would not be surprised to see the Fed and ECB diverge on rates here. And ECB put liquidity support measures back in or extend (did they ever really stop?).

That said, we are in a constantly evolving situation and it's all in play.


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## MrMatt (Dec 21, 2011)

james4beach said:


> Sure, no question there's at least one or two increases coming. But what's a 0.50% or 0.75% rate, when inflation is running at close to 10% per year?
> 
> I also hope they end QE. This stimulus has been happening since 2008, so that's 14 years now. I'll believe they end QE when I actually see them shrink their balance sheet.


Apparently food prices and futures are going nuts. I think we got a bit complacent, and stopped monitoring monetary policy. Even Trudeau said it wasn't a priority.

Now that we're seeing the consequences, I think monetary policy will get a bit more attention from some of the masses. 

I am hoping that we'll have a refocus on basics, you know strong economy, national security, stable and secure food and energy supplies etc. Elon is saying drill for more oil, because we're not ready to go full electric.

I think sometimes the dreamers loose sight of the basics.

As for the markets, I think the companies providing the essentials may be able to show their importance, but I'm concerned that some overeager governments may try to interfere with them.


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## MrBlackhill (Jun 10, 2020)

To the question "are we in a bear market", I wonder if people are noticing this pattern of dead cat bounces.

Today NASDAQ bouncing up by more than +3%, but then we keep reaching lower lows.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> To the question "are we in a bear market", I wonder if people are noticing this pattern of dead cat bounces.
> 
> Today NASDAQ bouncing up by more than +3%, but then we keep reaching lower lows.


You didn't get the memo? Market problems are solved, energy problems solved too


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## james4beach (Nov 15, 2012)

In all seriousness though, the US reports CPI tomorrow. It could be as high as 8% or 9% inflation.

Generally the market movements in the days before a big announcement tend to be pretty meaningless. There's both US inflation and an ECB announcement coming imminently. The market is going to react to this stuff, probably by early next week.

And then there's the big one, March 16 announcement by the Federal Reserve. That's only a week away.

So the market could be pretty wild this month. As they say, "beware the ides of March".


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## m3s (Apr 3, 2010)

The Fed is cornered here and I think Putin saw it.

The Fed does have one more tool up their sleeve: Yield curve control

Otherwise we could see an inverted yield curve



> Through quantitative easing (QE) designed to combat the 2008 financial crisis and Great Recession, the Fed injected liquidity into the financial system through massive purchases of bonds on the open market. This bid up the prices of bonds, thus reducing longer-term interest rates and borrowing costs.
> 
> However, during the financial crisis, the Fed was not seeking to set a specific long-term interest rate. By contrast, under yield curve control, the Fed would set a specific long-term interest rate target and buy as many bonds as necessary to achieve it. YCC would set a specific price for the bonds in terms of their yield.


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## Covariance (Oct 20, 2020)

m3s said:


> The Fed does have one more tool up their sleeve: Yield curve control
> 
> Otherwise we could see an inverted yield curve


No, these are really inconsistent in this context. YCC acts on long yields and is used instead of going negative on short term yields to stimulate the economy (looser monetary policy). We invert when the short term yields go up, not down. Which happens because the Fed tightens.


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## fstamand (Mar 24, 2015)

I think today was a good old "dead cat bounce". Hope you guys didn't buy too much today.


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## james4beach (Nov 15, 2012)

fstamand said:


> I think today was a good old "dead cat bounce". Hope you guys didn't buy too much today.


Still long HUC as my ongoing inflation/disaster hedge.

Today must have cost Larry about $110K though.


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## m3s (Apr 3, 2010)

Covariance said:


> No, these are really inconsistent in this context. YCC acts on long yields and is used instead of going negative on short term yields to stimulate the economy (looser monetary policy). We invert when the short term yields go up, not down. Which happens because the Fed tightens.


Do you mean the article is inconsistent?

We are expecting the Fed to tighten and push the short term up. The Fed is pressured to do so to control inflation. Normally the Fed would tighten when the economy is strong but the long term yields are flattening which could lead to yield curve inversion

The long term yields are flattening indicating the market is not sure the economy is strong. Normally facing a potential recession the Fed wouldn't tighten but now it's cornered by inflation. High oil prices is another signal for a potential recession

Could the Fed use yield curve control here instead of stimulus while they tighten to control inflation? Seems to me they tried to play God with the economy too long


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## Covariance (Oct 20, 2020)

m3s said:


> Do you mean the article is inconsistent?


I mean these two tools would not be used as suggested in the post as they would fight each other, not work together.


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## Covariance (Oct 20, 2020)

Spill over coming out now. Initial hedge fund closures and the Nickel issue. Looks manageable thus far, but contangion is still a known unknown. Stay nimble.


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## m3s (Apr 3, 2010)

Covariance said:


> I mean these two tools would not be used as suggested in the post as they would fight each other, not work together.


This is the absurdity of the situation. Ending QE and raising rates from 0 to tamper inflation as recession warnings flash.

If you raise short term yields when the long terms yields are flat you risk inversion right? Then what yield curve control? Everything you manipulate has unknown 2nd and 3rd order effects down the road so you end up have to use more manipulation to fix your own manipulation

The Fed is trying to drive the global economy by looking in the rear view mirror


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## Faramir (11 mo ago)

diharv said:


> I thought the economy and the recovery was sound. The stock market is not the economy but just one barometer of it is it not? And a bear market does not necessarily mean a recession does it? I thought that was two quarters of negative economic growth. I didn't think the Fed ever juiced the markets just to rescue stocks. Everything right now is being driven by fear. I heard someone say even the run up in oil is not driven by demand, but irrational fear. This is what is inflationary and may trigger a recession. The guy on BNN last week saying oil is in a multiyear bull run is nuts as we are already on the precipice of demand destruction. I would expect that with all his great posts and obvious intellect that J4B would not think that part of the Fed's job is to prop up the stock market.


Yes the oil price is way out of whack. A lot of people made a lot of money though. My guess is a few more days of bleeding then a rally. Probably close to old highs. Not because earnings justify it. Just because the entire market is driven by emotion.


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## Faramir (11 mo ago)

Thal81 said:


> My hypothesis right now is we might reach a technical bear market (-20%) soon for the S&P500, but this is going to be short lived because this war can't last for very long. This isn't a superpower starting WW3, this is an crazy man trying to capture his neighbour's territory by using the meagre resources of his poor country and the leftover war toys from a better era. The more this war stretches and the more likely Russia will implode.
> 
> Markets are now doing what they always do, they overreact and overcorrect. This war will be over in 2-3 weeks max and we'll be back on the bull train.


Economically not sure Putin can last a few more weeks.


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## TomB16 (Jun 8, 2014)

james4beach said:


> Sure, no question there's at least one or two increases coming. But what's a 0.50% or 0.75% rate, when inflation is running at close to 10% per year?
> 
> I also hope they end QE. This stimulus has been happening since 2008, so that's 14 years now. I'll believe they end QE when I actually see them shrink their balance sheet.


Agree on every point made.


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## james4beach (Nov 15, 2012)

Just noticed that the market is tanking throughout the day... boy did that "rally" fizzle out!

Yikes, NASDAQ really falling very hard.


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## rickyv (12 mo ago)

I am very new for investment, In order to tell bear market, how can we tell market "overbought"? are there any indicators? Maca, MA lines? I was totally loser, Many years ago, bank adviser told me to buy bond mutual fund and money market fund for safer investment, many years has passed, I am able to access my RRSP on line this year, It was horrible, My bond mutual fund lose 50%, Money market fund lose 20%. I am thinking to buy bank stocks.


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## james4beach (Nov 15, 2012)

rickyv said:


> In order to tell bear market, how can we tell market "overbought"?


There really is no clear way to know. This is more of an art than a science, and it's bit of a game.

Personally I still think stocks will be weak this year. I don't think the current rally will continue much longer. But who knows!



rickyv said:


> My bond mutual fund lose 50%


Are you sure? From what I can see, bond funds are down maybe 15% to 30% in the most extreme cases of "long term" bond funds.


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## KaeJS (Sep 28, 2010)

rickyv said:


> I am very new for investment, In order to tell bear market, how can we tell market "overbought"? are there any indicators? Maca, MA lines? I was totally loser, Many years ago, bank adviser told me to buy bond mutual fund and money market fund for safer investment, many years has passed, I am able to access my RRSP on line this year, It was horrible, My bond mutual fund lose 50%, Money market fund lose 20%. I am thinking to buy bank stocks.


What?

Money market funds don't lose money.
Definitely not 20%.


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## james4beach (Nov 15, 2012)

I think the down-market has resumed. I think we now get the next leg down.

Concentrated in US / tech / momentum stocks as before.

I also think ZWU (BMO's US low volatility index) has done a good job picking stocks that aren't vulnerable to this bear market. Year to date, ZWU is +7.5% compared to ZSP -7% which is incredibly good.


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## Covariance (Oct 20, 2020)

james4beach said:


> I think the down-market has resumed. I think we now get the next leg down.
> 
> Concentrated in US / tech / momentum stocks as before.
> 
> I also think ZWU (BMO's US low volatility index) has done a good job picking stocks that aren't vulnerable to this bear market. Year to date, ZWU is +7.5% compared to ZSP -7% which is incredibly good.


They are selling volatility and the up-side return potential of their stocks (covered call strategy). So they are actually just betting the stocks they own will go down, or increase less than predicted in the option market.


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## james4beach (Nov 15, 2012)

Covariance said:


> They are selling volatility and the up-side return potential of their stocks (covered call strategy). So they are actually just betting the stocks they own will go down, or increase less than predicted in the option market.


Sorry my mistake, I meant ZLU: the BMO Low Volatility US Equity ETF

Top holdings are: NEM, ED, NOC, CTRA, LMT, JNJ, AEP, AZO, PGR, BMY

In the charts you'll see that these have been completely immune to the selloff in the US. Here's a chart of ZLU (the low volatility strategy) versus ZSP for the S&P 500.


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## james4beach (Nov 15, 2012)

@MrMatt I recall that some time ago, you were interested in US stocks (not the market index) that could fare better in a bear market. Have you considered ZLU?


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## MrMatt (Dec 21, 2011)

james4beach said:


> @MrMatt I recall that some time ago, you were interested in US stocks (not the market index) that could fare better in a bear market. Have you considered ZLU?


Actually that looks really nice.. my kind of companies, boring, "has beens" etc.


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## james4beach (Nov 15, 2012)

Dudley, the former head of the NY Federal Reserve, said yesterday that the Fed has to tighten policy enough to make stocks fall, so that pain is felt in the stock market.


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## Covariance (Oct 20, 2020)

james4beach said:


> Dudley, the former head of the NY Federal Reserve, said yesterday that the Fed has to tighten policy enough to make stocks fall, so that pain is felt in the stock market.


That's a flamboyant statement but is just stating the obvious and sometimes it's hard to take those people seriously. It's not their true objective of course, which is fighting inflation, but is an outcome none the less. The whole point of raising rates and QT is to reduce demand in the economy. If it is successful it will at minimum reduce pricing pressure on goods and services sold in the economy.

As an aside the only governors I listen to are the chair and vice chair. The rest are political, talking to their local audience.


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## james4beach (Nov 15, 2012)

Covariance said:


> That's a flamboyant statement but is just stating the obvious and sometimes it's hard to take those people seriously. It's not their true objective of course, which is fighting inflation, but is an outcome none the less. The whole point of raising rates and QT is to reduce demand in the economy. If it is successful it will at minimum reduce pricing pressure on goods and services sold in the economy.


Yes and I actually agree with Dudley. It makes sense: tightening liquidity means stocks will fall.

If stocks haven't fallen yet, it's an indicator that liquidity hasn't been tightened enough. He recognizes (as many other economists do) that excessive liquidity has induced all kinds of wacky things.

Here's a good piece from Josh Brown. He's reminding us: yes, the Fed is your friend. They want to tighten liquidity because it's healthy for all of us. Jump to 2:40

"The Fed is your friend. The nonsense [in stocks and risk assets] has to stop."


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## james4beach (Nov 15, 2012)

I still think this could be an awful year in stocks.

In a few hours, the US will report their latest inflation numbers. Economists think they will be the worst numbers in 41 years. And when inflation numbers are that high, it forces the Federal Reserve to raise rates and start QT. So basically, the high inflation readings force the Fed to drain liquidity out of global markets.

And draining liquidity makes the price of everything drop. This is a good effect, but it probably takes stocks with it.

I think American and European stocks are going to drop a lot more. I'm not selling any of my US stocks though, because I could be wrong.


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## KaeJS (Sep 28, 2010)

james4beach said:


> I still think this could be an awful year in stocks.
> 
> In a few hours, the US will report their latest inflation numbers. Economists think they will be the worst numbers in 41 years. And when inflation numbers are that high, it forces the Federal Reserve to raise rates and start QT. So basically, the high inflation readings force the Fed to drain liquidity out of global markets.
> 
> ...


I don't say this often -

But I think you're right. 😅


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## londoncalling (Sep 17, 2011)

Anybody putting together a list for when the bear comes out of hibernation? Many interest rate sensitive stocks have already moved in anticipation of higher inflation and higher interest. I think if we do get a bear there will be a lot of options and a lot of time to move. I will likely run out of dry powder before the deals expire. I made some good buys in 2020 but the drop was steep and recovery was rather quick. Everyone sees this correction coming which could mean it doesn't happen as expected.


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## Covariance (Oct 20, 2020)

londoncalling said:


> Anybody putting together a list for when the bear comes out of hibernation? Many interest rate sensitive stocks have already moved in anticipation of higher inflation and higher interest.


I've got a couple of different game plans mapped out, depending on how events unfold. That said, a bear is one scenario but not my base case. The economy is just to strong (at the moment anyway). Not that I see any run-up either.


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## MrMatt (Dec 21, 2011)

james4beach said:


> I still think this could be an awful year in stocks.
> 
> In a few hours, the US will report their latest inflation numbers. Economists think they will be the worst numbers in 41 years. And when inflation numbers are that high, it forces the Federal Reserve to raise rates and start QT. So basically, the high inflation readings force the Fed to drain liquidity out of global markets.
> 
> ...


I was thinking the same thing, and was thinking my investment priority this year might be... gasp... mortgage prepayments.

I'm on variable, and if it hits 4%, that's quite a compelling 'fixed income' investment


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## james4beach (Nov 15, 2012)

What a bloodbath! This is for sure a bear market.

I'm sticking with all my existing positions of course. No point in trying to time this kind of thing.

I will also remind people that bonds are generally less volatile than stocks. So if stocks continue to tank, there will likely be some safety in bonds. Certainly is safety in GICs... in case anyone wondered why there's any point to holding GICs.


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## doctrine (Sep 30, 2011)

This is technically not a bear market for the S&P 500 or TSX, just correction territory. It is a clear bear for the NASDAQ - ouch, down 26%. ARKK is down almost 70%, which is a dot-com era blowout. Tech investors could have a rough decade ahead.

It's not even a -10% correction for energy, even after a 7% drop today.

This could be the early stages of a wider bear market though, maybe just a necessary once-every-2 to 3 year bear. Quite healthy. There is enough nonsense stocks out there. Nice to see Bitcoin showing its true colors too.


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## james4beach (Nov 15, 2012)

This S&P 500 chart is not encouraging. It just made a "lower low" and might break below 4000.
If it falls below that psychological support level, then many timid investors will sell. Then it could go down towards 3000.
Could be a 38% drop in the cards.


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## investor65 (Aug 3, 2021)

I think this will turn into a bear market.
Edit. I think the S&P will be a bear market.
Not sure about the TSX.


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## TomB16 (Jun 8, 2014)

investor65 said:


> I think this will turn into a bear market.


I hope so. I would enjoy an opportunity to expand holdings on some great companies at discount prices.


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## james4beach (Nov 15, 2012)

TomB16 said:


> I hope so. I would enjoy an opportunity to expand holdings on some great companies at discount prices.


Curious, where do you get the cash for that from? Aren't you retired?


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## Jimmy (May 19, 2017)

There has been good buying opportunities already IMO. They will sort this short term inflation out w a few more rate hikes if needed. Bond yields are already getting over 3% - above their recent avgs of ~ 2.5%

Much of this is due to oil and there should be more supply soon. OPEC is increasing supply and there is more drilling going on everywhere. We are supposed to be moving to EVs further reducing our demand for oil , another reason this oil shock should be short lived.

So get ready to load up on cheap stocks in the next few months or even nibbling now. Maybe wait until prices cross their 200MDA going up. Once inflation starts dropping they will stop the rate hikes and markets will roar back to life.


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## KaeJS (Sep 28, 2010)

Jimmy said:


> There has been good buying opportunities already IMO. They will sort this short term inflation out w a few more rate hikes if needed. Bond yields are already getting over 3% - above their recent avgs of ~ 2.5%
> 
> Much of this is due to oil and there should be more supply soon. OPEC is increasing supply and there is more drilling going on everywhere. We are supposed to be moving to EVs further reducing our demand for oil , another reason this oil shock should be short lived.
> 
> So get ready to load up on cheap stocks in the next few months or even nibbling now. Maybe wait until prices cross their 200MDA going up. Once inflation starts dropping they will stop the rate hikes and markets will roar back to life.


I agree with all this.

I have also started nibbling on interest rate sensitive stocks.


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## TomB16 (Jun 8, 2014)

james4beach said:


> Curious, where do you get the cash for that from? Aren't you retired?


How is being retired relevant? Perhaps you are under the misapprehension that retired is synonymous with poor?

I get the cash from my trading accounts.

I don't invest like you. Read the endless rants I've posted. My foot remains heavily on the accelerator of the investment car. That is how I mitigate risk.

The WBI has been 210 recently so I have been letting cash build for quite some time.


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## londoncalling (Sep 17, 2011)

US CPI data on Wednesday should be interesting. If results are worse than expectations the selling will continue. If inflation comes down there may be some belief that rate hikes will be less aggressive. One has to be mindful that rates are still way above target and likely will be for awhile. I may nibble a bit tomorrow. I want to pick up APPL, MSFT and AMZN. Of the three only AMZN is trading where it was in in the spring of 2020. Not sure if it will break $2000. The other 2 haven't even found their 52 week low yet.


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## TomB16 (Jun 8, 2014)

londoncalling said:


> US CPI data on Wednesday should be interesting. If results are worse than expectations the selling will continue. If inflation comes down there may be some belief that rate hikes will be less aggressive. One has to be mindful that rates are still way above target and likely will be for awhile. I may nibble a bit tomorrow. I want to pick up APPL, MSFT and AMZN. Of the three only AMZN is trading where it was in in the spring of 2020. Not sure if it will break $2000. The other 2 haven't even found their 52 week low yet.


I don't trade but I speculate there is an opportunity to trade this sort of data. These days, reports such as this lag the market so much that they are way too slow for retail investors with no attention span. I'll bet this data is 45 days old, by the time it is published. Further, I think inflation is probably worse than will be indicated in the CPI data.


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## scorpion_ca (Nov 3, 2014)

TomB16 said:


> The WBI has been 210 recently so I have been letting cash build for quite some time.


What is WBI and what does it mean when it's 210?


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## AltaRed (Jun 8, 2009)

TomB16 said:


> How is being retired relevant? Perhaps you are under the misapprehension that retired is synonymous with poor?
> 
> I get the cash from my trading accounts.
> 
> ...


Most retirees don't have the luxury of cash flow generation exceeding cash flow needs so one can be reasonably excused from that anomaly. It's not called 'withdrawal' or 'draw down' mode for nothing. It's a fair and reasonable comment.


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## londoncalling (Sep 17, 2011)

scorpion_ca said:


> What is WBI and what does it mean when it's 210?


I was wondering the same thing. My google search came up with the following:

Women's Basketball Invitational
Workplace Bullying Institute
Well Being Index


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## londoncalling (Sep 17, 2011)

TomB16 said:


> I don't trade but I speculate there is an opportunity to trade this sort of data. These days, reports such as this lag the market so much that they are way too slow for retail investors with no attention span. I'll bet this data is 45 days old, by the time it is published. Further, I think inflation is probably worse than will be indicated in the CPI data.


I don't trade but I do like to try and time my purchases once I have decided to buy. It really makes little difference for a long term hold compared to other factors such as time in the market, allocation etc. If I am content to buy company between $48-$52 on Monday it doesn't matter if I guess wrong buy it at $51 Tuesday and it goes to $48 Wednesday. Sometimes I miss out (ATD) and that's ok. There will be other opportunities. It is more important what it will be 1, 5, and 10 years from now. I don't think anybody would know with any accuracy.

My guess is the market will either go up, down or sideways as a result of Wednesday's CPI report or whatever reason the media attributes to the market movements that day. However, the guessing part keeps me interested. I think if I had gone the passive route I would be more likely to bail during market crashes. Most others would say the opposite. I guess I am weird that way.


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## TomB16 (Jun 8, 2014)

AltaRed said:


> Most retirees don't have the luxury of cash flow generation exceeding cash flow needs so one can be reasonably excused from that anomaly. It's not called 'withdrawal' or 'draw down' mode for nothing. It's a fair and reasonable comment.


It is possible to retire with enough resource to fund both a good lifestyle and an active investment strategy. Perhaps you should consider some new investment techniques?


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## TomB16 (Jun 8, 2014)

scorpion_ca said:


> What is WBI and what does it mean when it's 210?


The Buffett Indicator is a perspective device created by Warren Buffett in which he takes the entire market capitalization of all publicly traded companies in the US and divides by the current GDP. It is akin to having someone stand beside a rocket to provide perspective of how large the rocket is.

The W in WBI comes from the Wilshire 5000 index. Technically, this is not every publicly traded company in the US but it almost is and it's calculated automatically every day.

So: WBI = Wilshire 5000 / US GDP










Warren Buffett's go-to market gauge hits 211%, signaling stocks are hugely overvalued and a crash may be coming


The investor said the indicator spiking is a "very strong warning signal," and buying stocks when it approaches 200% is "playing with fire."




markets.businessinsider.com






Peter lynch does something similar. He uses a the S&P 500 PE compared to inflation to gauge market froth.

Lynch suggests: SP500 PE should not be more than (20 - inflation) in a healthy market.

While the Lynch approach is different than Buffet's froth indicator, they mostly end up in a similar place. I track both and they rarely disagree, although it depends on what you the "window of reasonableness" when evaluating Buffett's indicator.


When my indicators show a frothy market, I back off DRIPs and buy less aggressively.


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## AltaRed (Jun 8, 2009)

TomB16 said:


> It is possible to retire with enough resource to fund both a good lifestyle and an active investment strategy. Perhaps you should consider some new investment techniques?


Why be unnecessarily active when buy and hold works long term?

Added: I get that there are times when it is wise to part with something when it no longer measures up to expectations and buy something else that looks better. I do that every now and then, but that is a matter of the cash going from holding A to holding B. It is not a net new purchase.


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## james4beach (Nov 15, 2012)

AltaRed said:


> Why be unnecessarily active when buy and hold works long term?
> 
> Added: I get that there are times when it is wise to part with something when it no longer measures up to expectations and buy something else that looks better. I do that every now and then, but that is a matter of the cash going from holding A to holding B. It is not a net new purchase.


I still don't understand Tom's method. I don't mean to offend anyone, I'm just trying to figure out the mechanics of what he's doing.

Does this mean Tom is holding a large amount of uninvested cash, waiting for investment opportunities? Or is he trading XXX for YYY ?



TomB16 said:


> My foot remains heavily on the accelerator of the investment car. That is how I mitigate risk.
> 
> The WBI has been 210 recently so I have been letting cash build for quite some time.


Apologies, I'm just confused by this. Foot "heavily on the accelerator" makes it sound like you're fully invested at all times. But then you say you've been letting cash build up.

So as I understand it, you accumulate cash and then wait to jump on opportunities? Is that the method?


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## cainvest (May 1, 2013)

james4beach said:


> I still don't understand Tom's method. I don't mean to offend anyone, I'm just trying to figure out the mechanics of what he's doing.
> 
> Does this mean Tom is holding a large amount of uninvested cash, waiting for investment opportunities? Or is he trading XXX for YYY ?
> 
> ...


Could be a number of things, dividend payouts building up, asset allocation shift, etc.


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## TomB16 (Jun 8, 2014)

AltaRed said:


> Why be unnecessarily active when buy and hold works long term?
> 
> Added: I get that there are times when it is wise to part with something when it no longer measures up to expectations and buy something else that looks better. I do that every now and then, but that is a matter of the cash going from holding A to holding B. It is not a net new purchase.


Paraphrase: "Why don't you do it like I do it?"

When we retired, it necessarily changed our investment strategy but only a bit. The reason I do it my way is because I understand my way, know what results to expect from decades of operation, and am content with the performance.

Over time, I will shift to a more passive approach because I am becoming less motivated to make money and more motivated to do other things while I am physically able. I do enjoy managing our nest egg, though.




james4beach said:


> I still don't understand Tom's method. I don't mean to offend anyone, I'm just trying to figure out the mechanics of what he's doing.


If your question is sincere in it's intent, no offence can be reasonably taken. There is no need to walk on egg shells. You are cool with me and I respect your unique approach.




james4beach said:


> Apologies, I'm just confused by this. Foot "heavily on the accelerator" makes it sound like you're fully invested at all times. But then you say you've been letting cash build up.
> 
> So as I understand it, you accumulate cash and then wait to jump on opportunities? Is that the method?


I believe the best defence I can have is a good offence. For now, I am sticking with what works.

When the WBI is bending the indicator needle, I let cash build.




james4beach said:


> Does this mean Tom is holding a large amount of uninvested cash, waiting for investment opportunities?


Yes.

The high WBI does not exclusively drive our portfolio. I estimate the value of every company I follow. I've still found value but it is really hard when the WBI is sky high. On the other hand, it has been extremely interesting to have a crystal clear picture of what a raging bull market looks like.

I turn off DRIPs selectively by company and how I see their value.




james4beach said:


> Or is he trading XXX for YYY ?


I do not trade.

I have sold stock but it is extremely rare. I consider myself a partner in the business. If management does something I feel is unethical, I sell regardless of price because I do not want them as partners. If management does a good job and I feel they are honest, I will stay with them until the ship either sinks or reaches an island populated with nubile young women who all have a nerd fetish.

At some point, I will sell down our portfolio because we aren't going to live forever but it continues to grow, for the moment.




cainvest said:


> Could be a number of things, dividend payouts building up, asset allocation shift, etc.


Exactly.

It will take us two more years to sell off our RE investments, best case.


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## james4beach (Nov 15, 2012)

There's some significant damage showing in fund returns, and even balanced funds.

Year to Date returns to May 13 are
-14% Mawer Balanced Fund
-12% PH&N Balanced Fund
-11% VBAL and XBAL

With Mawer showing the worse decline because of their heavier growth stock exposure.

I crunched my end of week numbers and my YTD drawdown is only 6%, not too bad yet but I suspect it's going to get worse.


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## james4beach (Nov 15, 2012)

Horrendous Walmart results yesterday, with inventories sky high (analysts say it's unheard of).
Overnight, people had their fingers crossed that Walmart had just screwed up execution. Maybe Target's earnings will be oK?

Today it turned out that Target also had horrendous results and their stock crashed 25%. Disaster.

That means the US consumer is in terrible shape.


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## milhouse (Nov 16, 2016)

james4beach said:


> That means the US consumer is in terrible shape.


Depends on what you mean that the US consumer is in terrible shape. 
Sales were up for both WMT and TGT but operational costs like labour, fuel, freight, etc were up even higher with a shift away from high margin consumer discretionary to essentials which led to disappointing profit.
So the US consumer still seems to be spending but they're spending on different things and needing to pay more.


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## sags (May 15, 2010)

2000 all over again ?


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## scorpion_ca (Nov 3, 2014)

sags said:


> 2000 all over again ?


Good for those who are in accumulation stage.


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## sags (May 15, 2010)

scorpion_ca said:


> Good for those who are in accumulation stage.


It is if they have the money to invest.


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## londoncalling (Sep 17, 2011)

I think we will see a decrease in spending in both volume and dollar amounts. Many people have just begun to notice the increase in the cost of goods but haven't significantly changed their spending habits. They are also beginning to realize their wages will not keep up with inflation which create further hesitation in spending, in particular on expensive or unnecessary items. Most people I know are delaying vehicle purchases already not just due to lack of availability but due to price change. If the employment rate stays elevated and inflation lowers, people will become accustomed to the higher prices. I expect a couple bad quarters for retail but it is too early to tell if the US consumer is in terrible shape or is just realizing cheap money is gone.


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## bigmoneytalks (Oct 3, 2014)

londoncalling said:


> I think we will see a decrease in spending in both volume and dollar amounts. Many people have just begun to notice the increase in the cost of goods but haven't significantly changed their spending habits. They are also beginning to realize their wages will not keep up with inflation which create further hesitation in spending, in particular on expensive or unnecessary items. Most people I know are delaying vehicle purchases already not just due to lack of availability but due to price change. If the employment rate stays elevated and inflation lowers, people will become accustomed to the higher prices. I expect a couple bad quarters for retail but it is too early to tell if the US consumer is in terrible shape or is just realizing cheap money is gone.


What happened to the roaring twenties? I thought after the covid mess, consumer spending would be through the roof. I guess not


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## doctrine (Sep 30, 2011)

Markets are just barely hanging on. The longer the S&P 500 hangs out just above the 20% bear market line, the more likely it breaks.

Of course who knows what will happen, but based on where we are today, I would say markets are indicating we are near or already in a minor recession. Which is not surprising - energy prices and interest rates must rise enough to stop people from using diesel and gasoline, because there isn't enough of it to go around.


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## londoncalling (Sep 17, 2011)

This data does not include the pandemic crash but here are some stats on market performance and recessions. The data is from the US not sure if Canada tracks similar.

The Relationship Between Bear Markets and Recession (dqydj.com)

"In the post-WW2 era, roughly 2/3 of bear markets are associated with a recession."
"Four times since WW2, the S&P 500 was in a bear market _without_ a corresponding recession. The worst of those bears was in 1987, where the S&P 500 declined *35.94%* peak to trough. That bear was also quite a long one - we went 700 calendar days between new all time highs in the S&P 500. "


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## milhouse (Nov 16, 2016)

Nordstrom just reported quarterly results on Tuesday and sales figures were strong, +19% YOY to above prepandemic levels and raised its profic and revenue forecasts. Costco reports tomorrow and its numbers should be interesting.

We're in a very weird, uneven economic environment which makes financial forecasts very difficult IMO. Economists talked about a K-shaped recovery from the pandemic where white collar employees working from home that couldn't spend anything built up cash savings while a lot of service industry employees lost their jobs and struggled. I think we're seeing that play out a bit where some parts of the population are able to weather the current economic conditions particularly if unemployment stays low whereas others are struggling with inflation, higher interest rates, and limited wage growth. How this plays out overall is 



bigmoneytalks said:


> What happened to the roaring twenties? I thought after the covid mess, consumer spending would be through the roof. I guess not


I would say we're not completely past the pandemic mess yet in addition to my comment about the pandemic impacting population segments differently. China and Taiwan and their zero covid policies are likely still impacting supply chains. And of course the war doesn't help. There's also likely a re-shift going on as companies adjust supply chains that were exposed during the pandemic. Travel hasn't fully opened up yet, particularly Asian countries.


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## investor65 (Aug 3, 2021)

I think this is a good summary of what will happen this year in the US markets. Cdn banks would be in a similar situation.
Cdn dividend stocks would be ok.
I think energy stocks will continue their bull run because of reduced production and misguided ESG policies.



https://finance.yahoo.com/news/there-wont-be-a-v-shaped-bottom-in-this-market-strategist-181157181.html


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## londoncalling (Sep 17, 2011)

I think that the US market will underperform Canada over the next couple of years. The US had a good run the past while but with the decline in growth stocks and move to commodities it's Canada's turn. The Canadian banks seem to keep an even footing in good economies and bad. Barring a total collapse in RE they should be just fine even with the interest rate hikes taking some air out of rising house prices. If you look YTD the Canadian market is barely underwater in comparison to the US's 13% and 22% declines. Even if this is the bottom a pullback is healthy once and awhile to keep investors in check.


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## james4beach (Nov 15, 2012)

I was thinking about this more, and I think US stocks are going to fall a lot further this year.

Consider that the US market is still far above where it was at the end of 2019, and even 2019 was a high stimulus year. So the Fed was already pumping the market pretty seriously in 2019, and today, stocks are FAR above where they were before the pandemic happened.

I think the stock market will more gradually realize what's going on. So far, volatility has been quite low and I believe sentiment today is still quite good ... there's still a lot of confidence in stocks, even a lot of greed. That suggests to me that the big selling has not even started yet in US stocks.

Quantitative Tightening hasn't even started yet, and the Fed has barely raised interest rates at all. The fun hasn't started yet!

Having worked in tech I can say that there's been an incredible tech bubble in recent years, at least as far back as 2017 and maybe even further. That isn't going to be resolved in a few months of NASDAQ declines so I really think there is a lot more pain and selling to come. The tech people I know are still saying very greedy and optimistic things today, so I can see that the market has not yet caused them any pain.

That being said, I'm sticking with my 30% stock allocation because that was my original plan. The S&P 500 makes up around 14% of my total portfolio.


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## londoncalling (Sep 17, 2011)

I don't disagree @james4beach I think there is a good chance that last week was a bit of a breather before more downside in the US. Most bears take longer than a couple of months. The pandemic V-drop was quick and steep but that is unusual. The circumstances are completely different to 2020. There are similarities to the tech wreck of the 2000s as well as (gasp) the stagflation of the 70s. I am hoping that we don't see such a long bear but I am prepared for it. I'd much prefer that inflation supply chain issues subside and inflation cools. That will be sufficient reason for money to come back into the market. There is still a lot of headwinds. If we think food costs are high now wait till fall if fuel prices stay high, there is crop failures, and the war overseas continues. You are correct that most are still happily spending and excited to go out and have fun. I know of several people that are excitedly waiting for the arrival date of their shiny new vehicles.


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## sags (May 15, 2010)

A bear market will be a wistful dream in a few weeks.

The “all things bubble” has a lot of air to let out yet.

My prediction Is up to 40% dump in housing and solid stocks and 80% to 90% in meme stocks, crypto, and collectibles.

When the big daily dumps start piling up investors will go completely risk off.

It always goes like that with inexperienced DYI investors leading the rush out the exit doors.

Both the strength of the downturn and the subsequent recovery are always under estimated.


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## sags (May 15, 2010)

What is the % of “high risk” stocks in todays market mix ?

The companies that lose money, have lousy business models, carry too much debt, etc

The kind of companies Warren Buffet wouldn’t buy with someone else’s money ?


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## james4beach (Nov 15, 2012)

sags said:


> What is the % of “high risk” stocks in todays market mix ?


The highest risk stuff are the companies which don't have very low earnings, promising that they MIGHT later have strong earnings, and which are trading at high multiples. These are sometimes called "growth stocks" due to high P/E multiples.

That's a good question... what's the % in the market mix.

Here's a very crude estimate. Tech stocks are probably mostly growth stocks with very high multiples. They're about 20% of the US market. In Canada it's close to 0%.


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## londoncalling (Sep 17, 2011)

Using the low earning now strong earnings definition provided by @james4beach does not mean all tech companies are high risk nor items Buffett would touch. Last time I checked Apple was considered tech and owned by Buffet. 

Here is a recent list of the TSX Composite Index with their market cap which makes up 70% of the Canadian market. As "high risk" is subjective it will vary by investor.

Market Cap TSX Composite Index Companies Canada 2022: FKnol.com

Perhaps 20% is still a reasonable estimate. I am not sure the value in knowing the actual number. For me I don't purchase highly speculative names with zero history. Perhaps, if a definition could be made and a number assigned one could use it to determine how frothy the market is relative to other timeframes.


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## james4beach (Nov 15, 2012)

A nice video from a Bridgewater analyst.

The truth of this situation is: *rising interest rates are just a bad environment for investors*. It's going to hurt. That's because interest rates are the discounting rate for all future cashflows. Higher rates simultaneously lower the value of stocks, bonds, and real estate. That's just how the math works!

For years, I've been talking about how stock markets are propped up by low interest rates and central bank liquidity. Liquidity has driven such insane gains for 10 years, so I think it's natural to assume that stocks decline quite a bit when liquidity is removed.

I'm a bit overweight in Canadian equities and I think Canadian stocks will hold up better than American stocks. These American analysts are always mentioning "emerging stocks" but Canadian stocks actually have many similarities, with resource exposure and lower valuations. So I feel more confident about my Canadian stocks at the moment.


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## Covariance (Oct 20, 2020)

james4beach said:


> A nice video from a Bridgewater analyst.
> 
> The truth of this situation is: *rising interest rates are just a bad environment for investors*. It's going to hurt. That's because interest rates are the discounting rate for all future cashflows. Higher rates simultaneously lower the value of stocks, bonds, and real estate. That's just how the math works!
> 
> ...


Wait 'til next Thursday. (Fed is out on Wednesday)


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## sags (May 15, 2010)

Canada will suffer a little, but mostly we will eating popcorn and watching the news stories from the US.


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## londoncalling (Sep 17, 2011)

I still have most of my fixed income sitting in redeemable GICs. I also am looking for ways to prevent myself from raising current order prices as we wait for the fed announcement in regard for outlook for the fall and inflation data. My guess for now is 50 bps and 50 bps and wait and see for Sept. With this much consensus over raises, market downturn and recession, it's almost a guarantee markets will bounce back up the expected bottom is announced.


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## james4beach (Nov 15, 2012)

Not a very pleasant looking day in the market. Very high US inflation has increased the probability of more hawkish Federal Reserve action.

@Covariance any thoughts?


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## Covariance (Oct 20, 2020)

james4beach said:


> Very high US inflation has increased the probability of more hawkish Federal Reserve action.
> 
> @Covariance any thoughts?


CPI is not PCE but it gave us a look, and the message is no slow down in the cadence of increases in Q3. Base case for some time has been 50 next two meetings (June, July, no Aug meeting). Sept looks like another 50 unless we have two or three prints of moderating core. The PCE for June release ( in July) is going to be a big day.


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## james4beach (Nov 15, 2012)

Covariance said:


> he message is no slow down in the cadence of increases in Q3


By the way, check out the movement today in lower grade debt. Junk bonds (HYG) fell hard, -1.73%


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## Covariance (Oct 20, 2020)

james4beach said:


> By the way, check out the movement today in lower grade debt. Junk bonds (HYG) fell hard, -1.73%


Thanks. Had my eye on that but it’s completely normal. High yield and equities are correlated.


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## MrBlackhill (Jun 10, 2020)

Wow, bonds ETF are super scary, more than stocks.

Look at this on Portfolio Visualizer.

100% US Stock Market is currently in its 10th worst drawdown of the past 50 years.
100% 10-year Treasury is currently in its *2nd* worst drawdown of the past 50 years.

Maybe by the end of this month it'll take the first place!


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## Covariance (Oct 20, 2020)

MrBlackhill said:


> Wow, bonds ETF are super scary, more than stocks.
> 
> Look at this on Portfolio Visualizer.
> 
> ...


Not done yet, but somewhere I read the bond market had not previously done two negative return years in a row (in the modern era). I may have that wrong. Either way we are in exceptional times.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> Wow, bonds ETF are super scary, more than stocks.


I thought benchmark treasuries were now in the largest drawdown ever in history. Possibly the same for aggregate bonds.

By the way, this is why it's important (in modelling and back-testing) to look at the historical worst case and then plan to see a little bit worse. For example, most people think of the "worst case" drawdown in large cap US stocks as 50%, based on 2000 and 2008 bears. That's a bit too literal. I believe 60% to 70% is the worst case stock drawdown. It's a safer way to model things.

What's that thing people always say to me on this board? "Why would anyone ever hold a GIC?"


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## Covariance (Oct 20, 2020)

james4beach said:


> I thought benchmark treasuries were now in the largest drawdown ever in history, but I could be wrong.
> 
> What's that thing people always say to me on this board? "Why would anyone ever hold a GIC?"


Cash has zero beta and zero duration. On a relative return basis it’s killing it this year.


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## james4beach (Nov 15, 2012)

Covariance said:


> Cash has zero beta and zero duration. On a relative return basis it’s killing it this year.


The irony, right? Inflation is at a 40 year high and yet cash has been the best performer. In other words, -7% real return is *beating* stocks and bonds.

What a difficult situation for people. A diversified portfolio of assets is likely the better way to beat inflation... and yet, financial assets are doing horribly so far. I suppose this situation is going to tempt a lot of people to sit in cash, and they will miss out on the eventual rebound and high performance of financial assets.

@Covariance are you leaning towards market timing (staying in cash) or staying fully invested, as a way to beat inflation?

I personally think that sitting in cash is a dangerous game.


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## Covariance (Oct 20, 2020)

james4beach said:


> @Covariance are you leaning towards market timing (staying in cash) or staying fully invested, as a way to beat inflation?
> 
> I personally think that sitting in cash is a dangerous game.


Agreed. Sitting in cash is dangerous. I’m not a passive index investor so I don’t see it as moving in and out. My equity allocation is unchanged (from my TAA) although I would think people would call the sector exposures defensive and tilted to oil. Cash is part of FI allocation for me. I view as a zero duration floater and I’m comfortable market timing duration. So for the moment it’s a good place to be. We’ll see what the data tells us in the weeks ahead.


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## james4beach (Nov 15, 2012)

Covariance said:


> Agreed. Sitting in cash is dangerous. I’m not a passive index investor so I don’t see it as moving in and out. My equity allocation is unchanged (from my TAA) although I would think people would call the sector exposures defensive and tilted to oil. Cash is part of FI allocation for me. I view as a zero duration floater and I’m comfortable market timing duration. So for the moment it’s a good place to be. We’ll see what the data tells us in the weeks ahead.


If you're wiling to share, what's your current portfolio allocation? Mine is

16% Canadian equity, a bit overweight energy
15% US index with a bit of moving average-based risk mitigation
21% gold
24% bonds
24% GIC ladder, tightly spaced, semi cash-like

This is performing quite well YTD, benefiting from no volatility in the GICs, gold (which is flat) and Canada outperforming world equities.


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## KaeJS (Sep 28, 2010)

Some of you are making assumptions.

You say "stocks" as if they have all performed the same. They haven't. And what's the timeline?

I'm still up 22%. So you can't say "cash is beating stocks". Certain stocks, sure. But lots are still holding ground. Look at Fortis, for example.


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## AltaRed (Jun 8, 2009)

I think we collectively think 'broad index' when talking about an asset group.


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## Spudd (Oct 11, 2011)

KaeJS said:


> Some of you are making assumptions.
> 
> You say "stocks" as if they have all performed the same. They haven't. And what's the timeline?
> 
> I'm still up 22%. So you can't say "cash is beating stocks". Certain stocks, sure. But lots are still holding ground. Look at Fortis, for example.


22% over what period?


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## james4beach (Nov 15, 2012)

Stock market futures are plummeting. Another rough week ahead?

The Federal Reserve and Bank of England both make interest rate announcements in a few days.


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## MrBlackhill (Jun 10, 2020)

Yes, pretty sure we'll reach new lows this week. Maybe even today.


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## wayward__son (Nov 20, 2017)

Bank of Japan is in a pickle as well trying to hold its yield cap and the Yen freefalling. Stuff breaking everywhere (and Japan has a lot of foreign assets to sell)


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## londoncalling (Sep 17, 2011)

Looks like we are heading into a a typical bear market unlike 2008 or 2020. As markets trend down there will be days and weeks of lower highs and lower lows.


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## james4beach (Nov 15, 2012)

londoncalling said:


> Looks like we are heading into a a typical bear market unlike 2008 or 2020. As markets trend down there will be days and weeks of lower highs and lower lows.


Is it possible? A real bear market where the Fed doesn't swoop in to save the day immediately?

The last time we saw that was 2000-2002. Ever since then, the Fed has immediately rescued investors. This has conditioned stock investors to be fearless.


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## Covariance (Oct 20, 2020)

james4beach said:


> Is it possible? A real bear market where the Fed doesn't swoop in to save the day immediately?
> 
> The last time we saw that was 2000-2002. Ever since then, the Fed has immediately rescued investors. This has conditioned stock investors to be fearless.


We will find out Wednesday. Maybe


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## londoncalling (Sep 17, 2011)

@james4beach To answer your question on fed intervention my gut says they will swoop in but shouldn't. In a lot of ways the fed behaves like a helicopter parent. I think they will try to intervene at some point but until inflation heads downwards they will keep raising rates. Very few people were well established investors the last time we had such high inflation and a rapid rate rising environment. During the Volcker years many current investors, bankers and policy makers were just getting started in their careers. As such a lot of the moves are based on theory and not experience. I feel they want to take a hawkish tone and it is needed. Unfortunately, it comes with the likelihood of recession. If the Fed default to what is familiar they will halt QT and rate increases. If they raise too fast a soft landing is unavoidable. Unfortunately interest rate adjustments do not have much influence over supply chain disruption demand and therefore have little effect on inflation. They can't control the price of oil, china lockdowns or end the war in Ukraine. IMO presently these are the greatest concerns for the economy.

I expect 50bps with the more hikes on the way. Powell will send the message that 75 is on the table for fall if needed. Should make for an interesting week. Be curious to hear from those that were around in the 80s to share their experience. I hear lots about paying down the mortgage with double digit rates on homes that were under water but what about from an investment standpoint? Were people buying stocks? bonds?


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## james4beach (Nov 15, 2012)

Covariance said:


> We will find out Wednesday. Maybe


The Fed funds rate today is just 0.83% and even with a 50 bp hike, it will still be a paltry 1.33%

So when I say chicken out, I don't mean right now (they absolutely have to raise). Bigger question is whether they get to the 3% that the derivatives market expects near year end.

These rates are still VERY low. Even a 3% rate is extremely low, and we don't even know if they'll dare raise it that much.


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## londoncalling (Sep 17, 2011)

I think we'll see 3% or higher before year end. If 3% rates cause fear to borrowers they are in big trouble if we see truly high rates.


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## Gator13 (Jan 5, 2020)

I think we'll see 3% by the end of the year as well.


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## Covariance (Oct 20, 2020)

james4beach said:


> The Fed funds rate today is just 0.83% and even with a 50 bp hike, it will still be a paltry 1.33%
> 
> So when I say chicken out, I don't mean right now (they absolutely have to raise). Bigger question is whether they get to the 3% that the derivatives market expects near year end.
> 
> These rates are still VERY low. Even a 3% rate is extremely low, and we don't even know if they'll dare raise it that much.


Understood. I was referring more to their comments beginning in the press conference after the rate decision, and in days beyond when they expand on the cadence and quantum of future increases.


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## james4beach (Nov 15, 2012)

I just got an update from my Bay Street contacts who say the derivatives market now points to 3.5% policy rate at year end.


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## doctrine (Sep 30, 2011)

The last two weeks, markets were optimistic that the policy rate would settle lower than expected. Today was a big unwind of that expectation. Growth has to slow or reverse enough to allow people to adjust to higher cost of living driven by energy prices. Because there is zero new investment in lowering energy costs and the cost of living. If anything, new energy projects are going to be amongst the most expensive in history. I suspect after 12-18 months of misery, there may be enough political unrest and/or turnover to begin the process of starting up the "old economy".


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## james4beach (Nov 15, 2012)

This was a thorough ***-kicking today. Can't believe that everything I hold was down... amazing.

That's bear markets for ya.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> This was a thorough ***-kicking today. Can't believe that everything I hold was down... amazing.
> 
> That's bear markets for ya.


CSU, our best Canadian tech stock... is up +0.84%, lol.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> CSU, our best Canadian tech stock... is up +0.84%, lol.


Oh yeah, forgot that CSU was doing OK.

I don't hold SHOP but holy cow, does this thing fall 10% every day now? What a ridiculous stock.


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## Ponderling (Mar 1, 2013)

I can recall early 2000's when I would put max RRSP money in lump sum every year, and the next year the balance would be just s though I never put that new money in. 

But I kept at it. 

Yes there will be lots of fiscal storm clouds, likely in the next few years, but that does not mean you should stop planting fiscal seeds for the future.


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## Covariance (Oct 20, 2020)

james4beach said:


> I just got an update from my Bay Street contacts who say the derivatives market now points to 3.5% policy rate at year end.


And if we are referring to the US Federal Funds Rate the futures show it peaking a touch over 4% next May.


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## james4beach (Nov 15, 2012)

Covariance said:


> And if we are referring to the US Federal Funds Rate the futures show it peaking a touch over 4% next May.


Thanks, I didn't realize they're forecasting over 4% into next year. That's becoming a respectable level.

However, the US real estate market is now tanking (look at their mortgage rates) so I still am not sure the Fed will ever get there. Recall that the Federal Reserve aggressively bought mortgage securities, which stimulated real estate and mortgages.

Was the Bank of Canada buying mortgage securities too? They probably were, or hell, the Federal Reserve might have been buying Canadian issued MBS.


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## wayward__son (Nov 20, 2017)

El Oh El … ECB is already giving early signals of capitulation : 

European Central Bank announces emergency meeting to discuss market rout

We are a weak society friends. I am embarrassed to be a 21st century human. If our ancestors are up in the heavens they are surely looking upon us with disappointment. Future generations will know us as the weakest, sickliest of our kind.


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## wayward__son (Nov 20, 2017)

^^^ I should say, the above only applies to the asset owning classes, not the young people just starting to make their way in the world, or the poor who have never benefited from asset owner’s welfare


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## Covariance (Oct 20, 2020)

wayward__son said:


> El Oh El … ECB is already giving early signals of capitulation :
> 
> European Central Bank announces emergency meeting to discuss market rout


The issue is a more nuanced. Within the bloc the spread between rates of different countries sovereign debt has widened because of the different riskiness of some countries (eg Greece, Spain versus Germany). They need to keep the spread under control or the Euro will be no more. Expect measures to control the spread, not an about face on tightening.


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## wayward__son (Nov 20, 2017)

Covariance said:


> The issue is a more nuanced. Within the bloc the spread between rates of different countries sovereign debt has widened because of the different riskiness of some countries (eg Greece, Spain versus Germany). They need to keep the spread under control or the Euro will be no more. Expect measures to control the spread, not an about face on tightening.


Yes, fair enough -- one could say this planned "anti-fragmentation instrument" to save Italy and friends is a measure to save the eurozone. The core of it in my view of things anyway is still overindebted sovereigns and unwillingness to accept the austerity needed to repay the debt. Instead, they will socialize the losses through "not QE" and the release valve will be debasement of the euro.


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## wayward__son (Nov 20, 2017)

Covariance said:


> Expect measures to control the spread, not an about face on tightening.


I missed this part. Disagree here though I'm sure they'll find a way to call it not QE. 

About 1:15 mark of this video: doesnt really seem like they have a plan.


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## londoncalling (Sep 17, 2011)

At some point the debt needs to be repaid or the loss absorbed. This is reminiscent of 2008 when better faring countries like Germany had to bail out the likes of Greece and Italy. The question that remains is who is going to take the hit? The EU will need to have a united front as a political union. So far they seem to be working together or at least keeping the infighting out of the public eye. It's too early to tell what the plan will entail.


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## MrBlackhill (Jun 10, 2020)

I hate to say this, but late last year my parents were happy to tell me that their financial advisor finally convinced them to buy a bit of stocks (they were 100% GICs). Something like 20% of their portfolio. Maybe because they could afford a bit more risk, maybe because I kept talking how I was 100% stocks, maybe because I said stocks aren't risky when they are part of a diversified portfolio.

Not sure how they feel at the moment. Not sure how their financial advisor deals with their reaction.

When someone bought GICs their whole life and their first experience in stocks is a -20% drop within a few months, that's one cold shower, even if it's only 20% of their portfolio in stocks.

I guess the right way to see this is their whole portfolio only dropped -4%.


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## Covariance (Oct 20, 2020)

MrBlackhill said:


> I hate to say this, but late last year my parents were happy to tell me that their financial advisor finally convinced them to buy a bit of stocks (they were 100% GICs). Something like 20% of their portfolio. Maybe because they could afford a bit more risk, maybe because I kept talking how I was 100% stocks, maybe because I said stocks aren't risky when they are part of a diversified portfolio.
> 
> Not sure how they feel at the moment. Not sure how their financial advisor deals with their reaction.
> 
> ...


FYI It’s Fathers Day this weekend.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> When someone bought GICs their whole life and their first experience in stocks is a -20% drop within a few months, that's one cold shower


I think this kind of experience is a big reason people don't invest in stocks, or try it once (or twice), get burned and never invest again.

I think it's also why many people decide to just concentrate their wealth in their houses. To most people it feels like this works out better.

The house prices are illiquid so people have no idea how they are fluctuating, so they unwittingly hold the asset and ride out volatility over the years. Of course they *could* do the same thing in a stock/bond portfolio if they didn't constantly see the account statements. Additionally, Wall Street deliberately tries to feed people lots of quotes, news, and moving numbers to induce trading ... since these commissions and churn are the bread & butter of Wall Street.

Wall Street loves it when you trade. They love it when you watch your account and go through cycles of fear & greed. Goldman Sachs will consistently trade against you, because they know how (amateur) humans tend to react to markets. Our trades and impulses are a way to hand over money to Goldman Sachs & friends.


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## james4beach (Nov 15, 2012)

This is potentially a bigger deal than just the stock market declining. Pinging @Covariance 

Some junk bond ETFs are trading at steep discounts to NAV

HYG was 1.2% below NAV
JNK was 1.8% below NAV, the worst dislocation since 2016

This means liquidity in junk bonds is very poor. This is showing credit stress. It doesn't necessarily indicate a crisis, but does show liquidity disappearing.

It might also make the Federal Reserve more cautious about aggressive tightening.


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## m3s (Apr 3, 2010)

james4beach said:


> Wall Street loves it when you trade. They love it when you watch your account and go through cycles of fear & greed. Goldman Sachs will consistently trade against you, because they know how (amateur) humans tend to react to markets. Our trades and impulses are a way to hand over money to Goldman Sachs & friends.


It's interesting because I have a lot of success doing the same thing the past few years

I provide liquidity to DEX which basically means I am automatically taking the other side of people's trades and earning the fees. I'm providing the liquidity so they can trade when they want

The more volume the better it works for me. So yes I also love when people trade.


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## Covariance (Oct 20, 2020)

james4beach said:


> This is potentially a bigger deal than just the stock market declining. Pinging @Covariance
> 
> Some junk bond ETFs are trading at steep discounts to NAV
> 
> ...


Article is referring to market conditions before the Fed meeting, over a week ago. It’s -0.11 now. Not to dismiss out of hand but that was a while ago. I can expand on credit indicators if interested, there are better signals.


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## james4beach (Nov 15, 2012)

Covariance said:


> Article is referring to market conditions before the Fed meeting, over a week ago. It’s -0.11 now. Not to dismiss out of hand but that was a while ago. I can expand on credit indicators if interested, there are better signals.


Good point. Sure, I am curious: what are other credit indicators can one look at?

One I'm aware of is high yield spreads versus treasuries. Any other good ones?

This may become especially important as QT accelerates through this year, especially after September when the Fed really drains liquidity out of the system.


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## MrMatt (Dec 21, 2011)

I've been thinking about this a lot.
Who cares if it's a bear market, if anything that's the time to invest and grow.

If you can succeed in tough times, you can excel in good times.

I'm not changing my plan.


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## Covariance (Oct 20, 2020)

james4beach said:


> Good point. Sure, I am curious: what are other credit indicators can one look at?
> 
> One I'm aware of is high yield spreads versus treasuries. Any other good ones?
> 
> This may become especially important as QT accelerates through this year, especially after September when the Fed really drains liquidity out of the system.


Spreads for sure - HY, and IG OAS Index s Keep in mind, while every recession has been preceded by a ballooning of credit spreads, not every ballooning of credit spreads is followed by a recession. (Similar to the infamous 10-2 lol). 
Commercial and industrial loans issuance. And commercial real estate loans issuance 
VIX
Spreads on commercial paper
30 year residential mortgage level
treasury nominal and real yields across the curve
to name a few.


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## james4beach (Nov 15, 2012)

Covariance said:


> Spreads for sure - HY, and IG OAS Index s Keep in mind, while every recession has been preceded by a ballooning of credit spreads, not every ballooning of credit spreads is followed by a recession. (Similar to the infamous 10-2 lol).
> Commercial and industrial loans issuance. And commercial real estate loans issuance
> VIX
> Spreads on commercial paper
> ...


That's a very good list! I would add to the list, to keep an eye on emerging market bonds and EM currencies as situations like dollar strength can result in forced deleveraging and plummeting EM. We seem to be getting a bit of that happening right now but it's too early to tell.


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## james4beach (Nov 15, 2012)

MrMatt said:


> I've been thinking about this a lot.
> Who cares if it's a bear market, if anything that's the time to invest and grow.
> 
> If you can succeed in tough times, you can excel in good times.


I would just be cautious to not get overly aggressive. One problem with bear markets is that they wear down people, emotionally.

I was recently reflecting on the Gen-X experience with the 2000 bear market. It was really rough on the Gen-X workforce. They had high expectations coming through the late 1990s, then entered a stretch of NO market returns for 12-13 years. If you look at the historical data, you'll see that stocks underperformed the risk-free rate (t-bills) for 13 years! And with tons of volatility.

It wasn't just a bad stretch in markets, but a very long bad stretch.

So I think as we enter a rough market, we should keep in mind that we don't know how long this bad stretch will be. It could be 1 year or 10 years. Getting overly aggressive could be a killer, because after a few more years of intense losses, an aggressive strategy could become catastrophic.

My own solution to this is to focus on strict, regimented, methodical behaviour. I'm trying to develop patterns that make my investment process boring

sticking with the asset allocation plan
always obey the plan (buy what's underweight for example)
don't try to time or predict the market
as much as I'm tempted to, don't improvise on the fly
keep my expectations of returns low
I think there are other psychological benefits of letting the asset allocation plan dictate your actions. A mechanical or systematic approach frees you from emotional uncertainty, and *also frees you from regret*. You're not trying to time the market and there is no burden on you to watch the news and "tactically adapt". Your only duty is to maintain discipline and stick with the strategy, including rebalancing.


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## MrMatt (Dec 21, 2011)

james4beach said:


> I would just be cautious to not get overly aggressive. One problem with bear markets is that they wear down people, emotionally.
> 
> I was recently reflecting on the Gen-X experience with the 2000 bear market. It was really rough on the Gen-X workforce. They had high expectations coming through the late 1990s, then entered a stretch of NO market returns for 12-13 years. If you look at the historical data, you'll see that stocks underperformed the risk-free rate (t-bills) for 13 years! And with tons of volatility.


The tech boom was awesome, I know a lot of paper millionaires that lost it.
FYI during that time (late 90's until 2010's) I invested in the BMO dividend fund.





__





BMO Dividend Fund - Mutual Fund - BMO


The BMO Dividend Fund's main objective is to achieve a high level of after-tax return, including dividend income and capital gains. Start investing today.




www.bmo.com


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## james4beach (Nov 15, 2012)

MrMatt said:


> The tech boom was awesome, I know a lot of paper millionaires that lost it.
> FYI during that time (late 90's until 2010's) I invested in the BMO dividend fund.


Nice choice being in the BMO dividend fund.

When you say "was awesome" are we on the same page here, or do you mean something else? I was in university with people who had started out at Nortel. They lost their jobs and their NT options too... I know very few people who got through that period successfully.


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## james4beach (Nov 15, 2012)

For what it's worth, here are historical annual returns from the Stingy Investor Asset Mixer using a 50/50 allocation similar to the Couch Potato:
20% TSX, 20% S&P 500, 10% MSCI EAFE, and 50% bonds

1999 : +10.6%
2000 : +4.4%
2001 : -1.4%
2002 : -4.3%
2003 : +11.3%

Really not too bad at all. Many people did much worse during those years.


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## cainvest (May 1, 2013)

james4beach said:


> I know very few people who got through that period successfully.


I know many people that did well (a few did excellent) in the tech 2000 bubble. Most knew it was going to burst.


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## londoncalling (Sep 17, 2011)

Edited your post slightly to present an alternative outcome.



james4beach said:


> Good point. Sure, I am curious: what are other credit indicators can one look at?
> 
> One I'm aware of is high yield spreads versus treasuries. Any other good ones?
> 
> This may become especially important as QT accelerates through this year, especially after September when if the Fed really drains liquidity out of the system.


I always viewed the VIX as primarily a sentiment indicator however, it does make sense that it would also act as a credit indicator as overall credit strength takes a lot of fear out of the market. An increase to 30 year amortization and yield spreads are ones that I look at now again as I find them easy to obtain and understand. Perhaps it is just more familiar.

@Covariance is correct in that confirmation of these indicator is not a guarantee of recession. A lot of folks are saying it's here or on it's way. Even if we have a recession it may be quick and relatively painless. Things don't usually go up continuously forever. Like Matt said no need to change the plan. As such my cash weighting is still within allocation but growing.


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## londoncalling (Sep 17, 2011)

Early Gen Xers definitely felt the brunt of the tech wreck especially for those that got decimated by job loss, new home purchase and losing money in tech stocks. For later Gen Xers the job and equity markets had mostly recovered. As a result they got to enter the workforce and start their retirement savings in a flat but calmer environment.


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## Covariance (Oct 20, 2020)

james4beach said:


> That's a very good list! I would add to the list, to keep an eye on emerging market bonds and EM currencies as situations like dollar strength can result in forced deleveraging and plummeting EM. We seem to be getting a bit of that happening right now but it's too early to tell.


Absolutely. That is a very good point.


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## james4beach (Nov 15, 2012)

Futures are plummeting again, though I'm not sure how often the overnight futures carry through to regular hour markets.


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## KaeJS (Sep 28, 2010)

james4beach said:


> Futures are plummeting again, though I'm not sure how often the overnight futures carry through to regular hour markets.


They definitely carried over, and they got even worse =)

Last I saw from last night was -0.92%
Now I'm seeing -1.55%


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## MrMatt (Dec 21, 2011)

james4beach said:


> Futures are plummeting again, though I'm not sure how often the overnight futures carry through to regular hour markets.


I don't pay attention to that crap.
Don't care what is happening to stocks day by day.

My lumber mills are still cutting. People are still buying off Amazon, people still give Google all their ad money.

The fascination of watching all these short term fluctuations isn't my style at all.


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## londoncalling (Sep 17, 2011)

Daily market moves are interesting to watch if one has the time and inclination. Longer term a 1 day price change usually has little impact. Longer term trends and performance are what matter. We also have to be reminded that today's prices reflect the expectation of future results. 

I missed an opportunity to put in an order for CNQ this morning. Another opportunity may come along and if it doesn't that's ok too. I find it strange that one talking head said the drop in oil today is a result of Biden's announcement of putting a hold on the gas tax. Not sure how a tax holiday would hurt corporate profits. I could see how an increase in tax would hurt these companies.

Hmmm... lower gas price = more consumption = more revenue. What am I missing?


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## Gator13 (Jan 5, 2020)

Stocks could get a boost over the next week or two when a lot of funds and ETFs rebalance.


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## londoncalling (Sep 17, 2011)

Interesting thought. What shifts do you expect to see occur? Would it also mean that some stocks would also be sold off as part of the rebalance?


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## Gator13 (Jan 5, 2020)

With markets down, I would expect stocks to rise. I would think balanced funds will need to trim fixed income positions and buy equities to balance. The recent uptick could be partially attributed to this.


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## londoncalling (Sep 17, 2011)

Thanks for the reply. with so many etfs out there today it was hard to determine what you meant. Definitely for the large vanilla balanced funds we may see money go into stocks. I don't follow bond markets but I thought they took a hit recently as well. As to all equity etfs I am not sure if there is much for the market to gain from a rebalance. I also thought that the rebalancing had a more varied schedule. Interesting. As you can tell I know almost nothing about etfs. The only one I hold is VEQT in an RESP.


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## Gator13 (Jan 5, 2020)

I have read a few articles about it in the past, but I don't know the exact rules/guidelines that Funds or ETF's with an allocation mandate follow. I hold ZUT and VRIF. No mutual funds. Like you, I don't follow bonds either.


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## james4beach (Nov 15, 2012)

The summer months are kind of a yawner. Wall Street people and institutions (mutual funds, hedge funds) are all pretty much on summer break. There's not much economic news and I don't think one can guess where markets will move.

I think when everyone gets back to work in September, things can potentially get more interesting. But the summer months -- hard to take it seriously. My guess is that markets will whip around, on low volume, and do weird things for July & August.

Nice to see both the TDB8150 and TDB8152 in USD around the same interest rate now! I think they're 1.25% and 1.20%


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## londoncalling (Sep 17, 2011)

I agree that volume will be down and markets will maintain its bumpy ride over the summer as typically things are quieter. However, like sell in May (for the same reason) some of these theories are starting to become outdated. In our current interconnected world, data is available immediately and people can trade from almost anywhere; unlike the days of yesteryear when brokers would summer at the cottage for several months and perhaps pick up a paper once a week. A few things that will not be quiet over the summer are employment and inflation data. Obviously, everyone will be watching interest rates with great anticipation. As such we may remain in a low volume bear rally over the summer and then come fall volume and direction will pick up. another thing to consider that doesn't get much attention in Canada is the US midterms impact on markets. Typically there is a selloff heading into the election and then a bounce up in the following quarters. This is often attributed to uncertainty leading up to the election. Not sure if that will happen this time.


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## james4beach (Nov 15, 2012)

I can just imagine the pain and suffering of active traders who are trying to trade things like energy and bonds on a short-term basis.

One moment energy is crashing, then there are days like this with 6% rallies across the board... really crazy. I'm still guessing the trend is up but who knows.

I still think summer will be directionless, and the action starts in Q4.


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## londoncalling (Sep 17, 2011)

james4beach said:


> I can just imagine the pain and suffering of active traders who are trying to trade things like energy and bonds on a short-term basis.
> 
> One moment energy is crashing, then there are days like this with 6% rallies across the board... really crazy. I'm still guessing the trend is up but who knows.
> 
> I still think summer will be directionless, and the action starts in Q4.


I would take the opposite stance. Volatility is a trader's friend. Definitely requires nerves of steel but traders can make (or lose) a fortune in our current market volatility. I agree that pricing will be erratic over the summer. I will keep adding as cash becomes available even though prices will bounce all over the map. some think tech is at or near the bottom. I am hoping for another leg down for big tech names. Not sure it will happen.


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## m3s (Apr 3, 2010)




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## james4beach (Nov 15, 2012)

But that chart does not normalize for age. They are all shown on the same x-axis (year)... it's logical and expected for older people to have more wealth in RE.

Isn't it normal for the oldest generation (at any given time) to have more RE holdings?


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## m3s (Apr 3, 2010)

james4beach said:


> But that chart does not normalize for age. They are all shown on the same x-axis (year)... it's logical and expected for older people to have more wealth in RE.
> 
> Isn't it normal for the oldest generation (at any given time) to have more RE holdings?


The second chart is old and came up by mistake

The first one is new. Look at those spikes


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## james4beach (Nov 15, 2012)

m3s said:


> The second chart is old and came up by mistake
> 
> The first one is new. Look at those spikes


Oh yeah no question these are insane increases in RE, happening now.

Way out of the ordinary. Obviously stimulus driven and I think it's catastrophic for the younger generations.


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## AltaRed (Jun 8, 2009)

The last two years will go down in history as an experiment of what can go wrong when governments lose control of the vehicle. It was reasonable for governments to flood taxpayers with support in the early stages of the pandemic when it was not clear where the pandemic was going to take us, i.e. whether we'd have body bags 100 deep on the edges of our cities and a complete shutdown of society, or whether there would be a vaccine (light) at the end of the tunnel. The problem was in not shutting the valves nearly soon enough and targeting support on a means tested basis to those penniless in the streets. There was no discipline.

All that liquidity (and lack of discretionary spend elsewhere) ended up fueling an RE binge with essentially zero percent mortgages. Twenty or thirty years from now, central bankers and governments will look back on this period with astonishment just like they do today on how we (didn't) manage inflation 50 years ago.

I believe the RE story as it is today will have a great reset, i.e. reversion to the mean, in some form. Either flat lining for years, or with a major correction. Mortgage rates are not returning to what they were just a year ago.


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## james4beach (Nov 15, 2012)

AltaRed said:


> *All that liquidity (and lack of discretionary spend elsewhere) ended up fueling an RE binge with essentially zero percent mortgages*. Twenty or thirty years from now, central bankers and governments will look back on this period with astonishment just like they do today on how we (didn't) manage inflation 50 years ago.


I'm worried that they don't even connect the dots like this, and will not acknowledge a mistake.

Look at what the Federal Reserve did in the early 2000s. Greenspan explicitly encouraged Americans to take ARMs, and talked about how great the low interest rates were for real estate. Greenspan deliberately kick-started a bull market in real estate which turned into one of the greatest financial disasters of modern times.

So this isn't the first time they've done this. To me it looks like they just do this over and over again.


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## doctrine (Sep 30, 2011)

AltaRed said:


> I believe the RE story as it is today will have a great reset, i.e. reversion to the mean, in some form. Either flat lining for years, or with a major correction. Mortgage rates are not returning to what they were just a year ago.


Real estate is destined for a bear market and a buyers market. The music stopped in March almost instantly. There are houses listed in early March that had 10+ offers and sold in hours, and there are houses listed in mid-March that are still on the market today. Mortgages rates are firmly at 5% or higher. The odds of a variable rate today at 3.3% being above 5% by the end of the year are extremely high. Houses will sell if priced lower but there is a lot of denial by homeowners who want to "cash out big" and are over-pricing and not negotiating - those days are long gone. If I was buying today, I would have a ton of selection and negotiating power, and especially for houses above the median price.


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## MrBlackhill (Jun 10, 2020)

doctrine said:


> those days are long gone


I think those days are gone... but not long gone.

Rates are peaking, inflation is peaking, recession is coming and high interests won't solve supply issues, there's still lots of people looking for a roof.

I'm looking at stats in the province of Quebec and June 2022 has much fewer sales than June 2021, but average sale time is about the same and median price is about 5% to 20% higher.

As per this graph about my neighbourhood, we're still deep in a seller's market.


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## AltaRed (Jun 8, 2009)

That graphic is hopelessly out of date. Dec 2021 is ancient history. 

As Doctrine said, March (maybe April) was the turning point for sales volume and sales practices (multiple bids) in a number of locations. Timing will vary by geographic location but there was an abrupt and huge change here locally at that time, where there market became as hot as GVR albeit not at the same absolute price levels. Prices are off only 1.6% total over the past 2 months in aggregate but that is going to change as soon as sellers who need to sell have to substantially lower prices to get their properties sold. There is always a lag, sometimes as long as 6 months, before prices start to follow reduced sales activity. I am convinced our prices here will be substantially lower by September.

Quebec will most likely hit the wall just as hard in the not so distant future. I don't know about Calgary/Edmonton though. The surge in O&G prices and the depression that existed in house pricing for 5 years may actually keep those markets rising somewhat for the foreseeable future.


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## MrBlackhill (Jun 10, 2020)

Here's a more up-to-date graph including Q1 2022 for Montreal area. So far, all flat exception made for plex. I guess they'll soon release the data for Q2. I don't know how fast can things turn, but in Q1 rates were already moving fast.










Interestingly, I guess that with the new reality of work-from-home, some people simply moved out of the big Montreal area, turning other nice cities into an ever more seller's market and with prices still rising in the +20% range over 12 months.













AltaRed said:


> I am convinced our prices here will be substantially lower by September.


I'm sure that will happen too, but mainly because we've just had a bubble of median prices rising more than +30% over the past 2 years, so even if prices drop -20% it's just a correction. Obviously, like in the stock market, it'll hurt those who bought the bubble.

And, yes, when looking at median price for plex in Montreal which have been hit the "hardest" since April 2022, it's starting to move down. I bought a plex in 2019 and the plex market would have to crash -30% from its peak for me to be below my purchase price... And yet that would mean buying at a higher mortgage rate anyways...


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## nathan79 (Feb 21, 2011)

We're already moving into a balanced market here. If history is any guide I expect that to be a buyer's market before long.










I calculated some price drops for selected areas since the market peak in February.










I prefer median prices because they cover a wide range of price points. The median is the mid point, so it represents the typical home (not to be confused with the average, which can be skewed by a few expensive properties). The benchmark price is the one most often quoted by the industry, but it's based on a formula that is not very responsive to market conditions. It tends to mask the initial stages of a housing correction, so it's no wonder the RE industry likes to use it. It also only applies to a specific type of home, so it's only useful for certain people.


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## peterk (May 16, 2010)

There's also all the current buyers (shoppers) who are on the clock with their mortgage pre-approvals at 4% from a few months ago. One of my relatives being one of them - I'm advising them to wait, but no dice - need to get that house fast before the pre-approval expires or need to re-do the mortgage at 5.2%. Spending 20k more on interest to save 50k on house price seems like a good deal to me... but oh well.

So there's an ongoing brief surge in buyers who might hold the market from crashing for another month or two, and then everyone who rushed in and were on the clock will be off the market, and people who dawdled around will now have higher mortgage payments and will not tolerate paying the same price as months before.


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## londoncalling (Sep 17, 2011)

__





The great normalization has crushed investor sentiment — and that may be a sign the worst is over - Steadyhand Investment Funds


Global stocks are down almost 20% year-to-date, investor sentiment has gone from one extreme (greed) to another (fear), and the R-word (recession) is increasingly being thrown around. So where does this leave us as we look ahead to the second half of the year? Tom Bradley provides some...




www.steadyhand.com





This article by Tom Bradley provides an optimistic view of the current bear market. I think it does a good job in summarizing the current state and provides a vague but apt prognosis of where things are headed going forward. The statement that companies that have strong balance sheets will be rewarded is welcome news for those that believe in sound financial operations. Growth did have a good run and many expect value to have a bit of a run over the next while. I still expect a bumpy couple of quarters based on response to inflation data and interest rate response.


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## james4beach (Nov 15, 2012)

Do any of you remember how in late 2007 / early 2008, there was an inflation scare? Commodities and energy in particular were rallying like crazy.

Energy became a very popular and overcrowded trade. While people thought they were protecting themselves from inflation, they were actually buying commodities right at the peak before an extremely sharp downturn. It turned into deflation and deleveraging.

I wonder if something similar is happening this year. I will actually applaud the central banks if they successfully fight inflation and knock down commodity prices.


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## londoncalling (Sep 17, 2011)

james4beach said:


> I will actually applaud the central banks if they successfully fight inflation and knock down commodity prices.


I will do the same if they can do it without causing mass unemployment and a major recession.


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## james4beach (Nov 15, 2012)

londoncalling said:


> I will do the same if they can do it without causing mass unemployment and a major recession.


That may be unrealistic. I think that low interest rates (and liquidity) have been central to the economic expansion.


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## doctrine (Sep 30, 2011)

londoncalling said:


> I will do the same if they can do it without causing mass unemployment and a major recession.


We are talking about the same group of people that have been consistently wrong, month after month, for over 2 years now? "We will keep interest rates low for a long, long time." As recently as a few months ago, they were predicting inflation would be normal by March of next year and now they are already talking about 2024.


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## james4beach (Nov 15, 2012)




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## james4beach (Nov 15, 2012)

Stepping back a moment, let's remember that there has been intense financial stimulus thanks to the Federal Reserve (and BoC, ECB, BoJ) *ever since 2008*. This is when Quantitative Easing (QE) was combined with zero interest rate policy (ZIRP). The combined QE + ZIRP stimulus has been pumping liquidity into financial markets for many years.

We've now had 14 years in an environment with QE + _negative real interest rates_. That's incredible stimulus. It still continues today by the way.

And there was a massive stock market and real estate rally, something many of us have benefited from. But I think we've all forgotten how much of this was amped up by QE and ZIRP. They accelerated and fuelled the rise; it was a liquidity-driven bull market.

Conversely, I really think these asset prices will weaken very significantly if QE and ZIRP are taken away. It's the same liquidity story at play. You pump liquidity into markets, assets rise. Take away the liquidity and assets fall, or at least, perform poorly for a while.

So now you might ask, why do I remain invested if I expect the end of QE and ZIRP. The answer is that I'm not convinced that central banks have the balls to take away QE and ZIRP. They talk a big game, but are they really going to follow through? I'll believe it when I see it.

Right now we're more than a year into very high inflation, and there's a tiny bit of Quantitative Tightening (QT), and still effectively zero interest rates. We still have negative real interest rates.

The central banks haven't really tightened yet, and QT hasn't started (seriously) yet.

Central banks claim they will start significantly reducing the balance sheet (QT) in the fourth quarter, but they haven't done it yet. I can't predict what central banks will do, so that's why I'm not going to try to predict market direction or get out of stocks.

Also notice how the stock market has become extremely sensitive to comments from the Fed. This is rational IMO... it's showing that stock prices are basically determined by liquidity and stimulus policy. That's something I've talked about for many years: liquidity fuels the rise in stocks.

Many years ago, even the BMO published a report showing the amazingly high correlation between the Fed balance sheet and S&P 500. This is a well known relationship.

@MrBlackhill you'll notice that on the 'Rational Reminder' forum, people seem to think it's crazy and irrational when stock prices swing around as Powell opens his mouth. I think it's totally rational, and those people don't get it -- they don't understand the forces that move stocks. Liquidity and central bank policy is the biggest factor in the S&P 500 level.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> @MrBlackhill you'll notice that on the 'Rational Reminder' forum, people seem to think it's crazy and irrational when stock prices swing around as Powell opens his mouth.


Honestly oftentimes I don't understand them. They believe in the efficient market hypothesis, so every information is priced in, which also means that every new information makes the market move and Powell definitely brings new information every time he opens his mouth. If that information was mostly expected, volatility decreases as the market will price that reduction in the risk of unexpected information since the expectations were confirmed. If that information was mostly not expected, volatility will increase until it stabilises to a new level pricing it that unexpected information.


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## m3s (Apr 3, 2010)

james4beach said:


> Central banks claim they will start significantly reducing the balance sheet (QT) in the fourth quarter, but they haven't done it yet. I can't predict what central banks will do, so that's why I'm not going to try to predict market direction or get out of stocks.
> 
> Also notice how the stock market has become extremely sensitive to comments from the Fed. This is rational IMO... it's showing that stock prices are basically determined by liquidity and stimulus policy. That's something I've talked about for many years: liquidity fuels the rise in stocks.
> 
> Many years ago, even the BMO published a report showing the amazingly high correlation between the Fed balance sheet and S&P 500. This is a well known relationship.


It was always a thing but it's become _the_ thing now

More and more of the market participants are dialed in on the Fed now. Even if you don't believe central banks have that much influence enough of the market now believes it that it is so

One meeting a few words were misinterpreted or misspoken and the market went insanely volatile for a few days as they clarified. Insanity


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## james4beach (Nov 15, 2012)

m3s said:


> It was always a thing but it's become _the_ thing now
> 
> More and more of the market participants are dialed in on the Fed now


That's a good point. Fed policy was always important but it's now absolutely critical.

Recently, Powell said (or implied) that the current Fed rate is about neutral, which is an amazing thing to say. Stocks went crazy, interpreting that as meaning the Fed is now going to pause or hold off on more aggressive hikes.


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## bigmoneytalks (Oct 3, 2014)

james4beach said:


> Stepping back a moment, let's remember that there has been intense financial stimulus thanks to the Federal Reserve (and BoC, ECB, BoJ) *ever since 2008*. This is when Quantitative Easing (QE) was combined with zero interest rate policy (ZIRP). The combined QE + ZIRP stimulus has been pumping liquidity into financial markets for many years.
> 
> We've now had 14 years in an environment with QE + _negative real interest rates_. That's incredible stimulus. It still continues today by the way.
> 
> ...


So if they pull out, wouldn't this be a wealth destroyer for everyone? Pensions rrsp etc. Stocks must move up in order for people to obtain a decent living in retirement. Pulling out and let it ride for years would be disasterous for many that depend on growth in the equities markets


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## james4beach (Nov 15, 2012)

bigmoneytalks said:


> So if they pull out, wouldn't this be a wealth destroyer for everyone? Pensions rrsp etc. Stocks must move up in order for people to obtain a decent living in retirement. Pulling out and let it ride for years would be disasterous for many that depend on growth in the equities markets


And home prices too. Yes this is the argument for the Federal Reserve and Bank of Canada to continue with stimulus, forever.

But you're forgetting the consequence: inflation. This problem never came up in preceding years because inflation was always around 2%. Those were amazing years... stimulus without consequences.

Now that inflation is more like 8% to 9%, there's a potential big problem with continuing stimulus. Make no mistake, the central banks *would love* to continue with stimulus forever (it makes rich people happy).

So let's say everyone insists the central banks continue with stimulus / QE now. What happens then? Well yes, assets rise in value, but the cost of living keeps increasing at 10% a year, possibly rising even more towards 15% a year. Commodities and energy go absolutely crazy, we end up with $200 or $300 oil, retirees struggling to survive the soaring cost of living, poor people completely screwed.


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## bigmoneytalks (Oct 3, 2014)

james4beach said:


> And home prices too. Yes this is the argument for the Federal Reserve and Bank of Canada to continue with stimulus, forever.
> 
> But you're forgetting the consequence: inflation. This problem never came up in preceding years because inflation was always around 2%. Those were amazing years... stimulus without consequences.
> 
> ...


This is F'd up. We've reached a point of no return. Pun intended....


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## james4beach (Nov 15, 2012)

bigmoneytalks said:


> This is F'd up. We've reached a point of no return. Pun intended....


Well I think investments will still perform well over the long term. We just might have to deal with 3 or 5 years of poor returns.

And we could get lucky. Inflation might come down for other reasons, maybe saving the central banks from having to do too painful tightening.


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## james4beach (Nov 15, 2012)

Bear market update ....

On Friday, the Federal Reserve reiterated (same message as before really) that they will keep fighting inflation and keep tightening financial conditions. Powell even said that it MAY be painful.

So I think they are pretty clearly communicating that financial conditions are tightening. That's not a good outlook for stocks at all so I'm thinking we'll see a few very bad months, maybe big drops in Sept & Oct.

But let's remember the *wildcard* here, which is inflation. At some point, inflation is going to subside, and when that happens, the central banks will end their tightening. There is absolutely no way to predict the timing on this, which is why I'm not attempting to trade in and out of my long-term positions.


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## doctrine (Sep 30, 2011)

james4beach said:


> But let's remember the *wildcard* here, which is inflation. At some point, inflation is going to subside, and when that happens, the central banks will end their tightening. There is absolutely no way to predict the timing on this, which is why I'm not attempting to trade in and out of my long-term positions.


This is known as the "pivot" or perhaps even "The Pivot". It will inevitably occur, just as inflation will inevitably subside, but it is less clear under what circumstances each of those occur. Energy inflation is rampant and getting worse everywhere, and the only reaction is for governments to fiscally subsidize through debt and money printing. This is just causing more predictable increases in just about every energy cost imaginable as demand stays high, and there isn't actually more energy out there because of restrictions by those same governments on energy supply. So it is just driving prices higher and higher. To me it is clear we are on this path for a little while longer because there is no action to undo what is occurring, only actions to make it worse.

Assuming no supply response which hasn't started and takes 5 years anyway (OPEC might even cut, imagine that), the only inevitable outcome is interest rates have to go so high that governments cannot afford to subsidize energy anymore and so stop money printing and allow demand to stop, or even reverse. That is a lot higher than the 2-3% rates we have now.


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## m3s (Apr 3, 2010)

doctrine said:


> Energy inflation is rampant and getting worse everywhere, and the only reaction is for governments to fiscally subsidize through debt and money printing. This is just causing more predictable increases in just about every energy cost imaginable as demand stays high, and there isn't actually more energy out there because of restrictions by those same governments on energy supply. So it is just driving prices higher and higher. To me it is clear we are on this path for a little while longer because there is no action to undo what is occurring, only actions to make it worse.


Winter is coming. Putin is crushing the Euro


__ https://twitter.com/i/web/status/1563938605520879619


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## m3s (Apr 3, 2010)

Senator Karen is already calling for the Pivot

Senator Warren worries that Fed will tip U.S. economy into recession


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## sags (May 15, 2010)

A lot of business and finance people are concerned about a recession.


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## m3s (Apr 3, 2010)

sags said:


> A lot of business and finance people are concerned about a recession.


How to you destroy demand to prevent hyperinflation without a recession?

Recession is already here except they changed the definition of recession just like they conveniently changed how they calculate the CPI

You want to print money to bail out the economy again? Those with assets will be richer and the rest will not - no more middle class


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## sags (May 15, 2010)

You increase supply to meet the demand.


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## m3s (Apr 3, 2010)

sags said:


> You increase supply to meet the demand.


You should call JPow 'cause he says demand needs to be cooled

Tell him it's time to print more money and kill off the middle class for good.

The great reset - Crystia Freeland is a big WEF fangirl


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## doctrine (Sep 30, 2011)

sags said:


> You increase supply to meet the demand.


This is the solution, unfortunately though, there is no new supply of most things. Energy is the start, because once energy becomes expensive, it becomes uneconomic to make many things, and this has already started in many places. 

Energy has been structurally cheap for four decades. The world's supply is hanging on a very thin balance at the moment.


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## sags (May 15, 2010)

Yes…. higher interest rates won’t cool demand for products and services people have to purchase to live.

It will only make their situation worse.


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## m3s (Apr 3, 2010)

sags said:


> Yes…. higher interest rates won’t cool demand for products and services people have to purchase to live.
> 
> It will only make their situation worse.


It cools off the speculation which impacts the price of everything

People were borrowing money to speculate in everything, including RE and things people need to live. People in europe are adjusting their demand of "things they needed" now that energy did a 10x

It's not like people in africa keep buying things they "need" people adjust their demand to the reality


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## james4beach (Nov 15, 2012)

The danger of political interference worries me. For example, Trump may get elected and again start bossing around the Federal Reserve, like he was doing during his last term. Trump *repeatedly* pressured Powell to keep interest rates low, slamming him in public comments.

If high inflation continues, Trump (or other politicians) can pressure the central bank to keep interest rates low. It's not like Trump's behaviour has improved over time so it seems certain that he would interfere with the Federal Reserve.


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## londoncalling (Sep 17, 2011)

I also fear political interference. However, I am not sure that Trump or Biden will be around after the next Presidential election. I know the US is constantly in campaign mode but there can be a lot of surprises in the next 2 years.


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## Covariance (Oct 20, 2020)

Political interference is a given. It's really more of a question as to how much fortitude the Fed Chair has to act independently. At times it would certainly require a thick skin.

At this point Powell realizes he is writing his own legacy. And he wants to remembered as a Volker not another Arthur Burns. Or so he says. By next Spring we will know.


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## james4beach (Nov 15, 2012)

Covariance said:


> At this point Powell realizes he is writing his own legacy. And he wants to remembered as a Volker not another Arthur Burns. Or so he says. By next Spring we will know.


He knows how to talk but we'll see.

Here's the Federal Reserve balance sheet. It was under $1 trillion before the 2008 crisis. Currently it's $8.9 trillion. Does anyone think the Fed can even bring this down to what it was before the 2020 crisis? Every crisis seems to permanently add another few trillion.

No Quantitative Tightening has occurred yet. Does _anyone_ really think they will shrink by $5 trillion, ending up at $4 trillion? (pre-covid)

This is an addiction they can't shake off. The housing market is going to tank, people will start screaming, Wall Street will start screaming, economists will start making excuses again and before we know it, the Fed balance sheet will be up to $10 trillion


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## james4beach (Nov 15, 2012)

Copying & pasting the start of a Bloomberg article. I don't think Grantham can predict the market with any accuracy, but he's an interesting character and has nice interviews on YouTube. Do a search for Grantham Super Bubble and you'll find the 37 minute interview. He also had a guest spot on The Long View.

I completely agree with his views on the Federal Reserve. He's angry at what they've done going back to the 1990s, by repeatedly inflating bubbles, and then bursting them. Economists seem to think this is a great idea, but each of these cycles causes harm and some severe investor losses.

​*Jeremy Grantham Warns ‘Super Bubble’ in Stocks Has Yet to Burst*​​Famed investor Jeremy Grantham said the “super bubble” he previously warned about has yet to pop, even after this year’s turbulence in the US stock market.​​The co-founder of Boston asset manager GMO, known for calling market bubbles, said in a note Wednesday that the surge in US equities from mid-June to mid-August fits the pattern of bear market rallies common after an initial sharp decline — and before the economy truly begins to deteriorate. Grantham, 83, sees more trouble ahead because of a “dangerous mix” of overvalued stocks, bonds and housing, combined with a commodity shock and hawkishness from the Federal Reserve.​​Grantham predicted around the start of the year that benchmark stocks would plunge almost 50% in a historic collapse. The S&P 500 at one point in June dropped almost 25% from its January peak, before roaring back in the following two months. Yet US equities are tumbling yet again, falling on Wednesday for the fourth straight session, with prominent strategists like Morgan Stanley’s Mike Wilson among those cautioning investors that the market hasn’t hit bottom.​​"You had a typical bear market rally the other day and people were saying, ‘Oh, it’s a new bull market,” Grantham said in an interview. “That is nonsense.”​​


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## Covariance (Oct 20, 2020)

james4beach said:


> Copying & pasting the start of a Bloomberg article. I don't think Grantham can predict the market with any accuracy, but he's an interesting character and has nice interviews on YouTube. Do a search for Grantham Super Bubble and you'll find the 37 minute interview. He also had a guest spot on The Long View.
> 
> I completely agree with his views on the Federal Reserve. He's angry at what they've done going back to the 1990s, by repeatedly inflating bubbles, and then bursting them. Economists seem to think this is a great idea, but each of these cycles causes harm and some severe investor losses.
> 
> ​*Jeremy Grantham Warns ‘Super Bubble’ in Stocks Has Yet to Burst*​​Famed investor Jeremy Grantham said the “super bubble” he previously warned about has yet to pop, even after this year’s turbulence in the US stock market.​​The co-founder of Boston asset manager GMO, known for calling market bubbles, said in a note Wednesday that the surge in US equities from mid-June to mid-August fits the pattern of bear market rallies common after an initial sharp decline — and before the economy truly begins to deteriorate. Grantham, 83, sees more trouble ahead because of a “dangerous mix” of overvalued stocks, bonds and housing, combined with a commodity shock and hawkishness from the Federal Reserve.​​Grantham predicted around the start of the year that benchmark stocks would plunge almost 50% in a historic collapse. The S&P 500 at one point in June dropped almost 25% from its January peak, before roaring back in the following two months. Yet US equities are tumbling yet again, falling on Wednesday for the fourth straight session, with prominent strategists like Morgan Stanley’s Mike Wilson among those cautioning investors that the market hasn’t hit bottom.​​"You had a typical bear market rally the other day and people were saying, ‘Oh, it’s a new bull market,” Grantham said in an interview. “That is nonsense.”​​


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## AltaRed (Jun 8, 2009)

Grantham is a bit of a drama queen but I think the downturn will be deeper and longer than most investors assume. Investors have short memories and have already forgotten much of the financial crisis and the earlier years of that decade when interest rates were more 'normal'. I assumed earlier this year we would end 2022 in negative territory in equity markets with the only unknown being 'how much'. It may well be negative double digits rather than negative single digits. That is plenty okay though. A 1-2 year bear market would be a good reset.


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## james4beach (Nov 15, 2012)

I think it's likely stocks will keep falling through to the end of the year. A few reasons I say this:

market technicals are weak, index below the 200 day moving average
short term rates (6 mo or 12 mo treasury yields) consistently marching higher
very tame VIX, showing not much fear, not much downside hedging happening
central banks want a _negative wealth effect_ (stocks & real estate)
personally, I still feel too wealthy. So I think central banks have to push further to kill the wealth effect.

The only thing that gives me some bullish optimism is that there's too much bearish sentiment out there. In the financial media, most people seem to be expecting further declines. Mr. Market likes to fake out traders, so it wouldn't surprise me to see prices move contrary to expectations.

Stocks could go either way, but I'm leaning towards -- down.


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## KaeJS (Sep 28, 2010)

james4beach said:


> personally, I still feel too wealthy.


Must be nice.


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## james4beach (Nov 15, 2012)

KaeJS said:


> Must be nice.


Well I just mean that although I've lost net worth, it hasn't been a massive % decline yet. I suspect that the central banks want pain to be felt... people have to sweat, for negative wealth effect to succeed.

I *have* lost wealth since the peak prices. I just mean that I'm not crying yet, but I think that's coming.

By the way, I seem to recall that you have a much higher income than me. My consulting contracts have dried up this year (the tech sector is rapidly slowing) so I assure you that you have much more cashflow than me. I will have a very low income this year.


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## londoncalling (Sep 17, 2011)

@james4beach I know you had planned work would slow down for you this year. Are you taking on as much as you reasonably can? I understand some work is not worth taking on (certain clients, certain contracts, price points). I have heard from others in IT/engineering that things have slowed down from crazy to manageable to now possibly slow enough to cause budget cuts/layoffs. I am only speaking for the sectors that I know. In construction there is still more projects than labour and materials can keep up with but talk about the project pipeline slowing is now taking up more of the discussion in meetings.

Added: If we see a sideways or upward equity market over the next 30 days I will likely lock in some cash to GICs for mortgage renewal. Current GIC rates provide a decent spread over my current mortgage rate.


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## james4beach (Nov 15, 2012)

londoncalling said:


> @james4beach I know you had planned work would slow down for you this year. Are you taking on as much as you reasonably can? I understand some work is not worth taking on (certain clients, certain contracts, price points). I have heard from others in IT/engineering that things have slowed down from crazy to manageable to now possibly slow enough to cause budget cuts/layoffs. I am only speaking for the sectors that I know. In construction there is still more projects than labour and materials can keep up with but talk about the project pipeline slowing is now taking up more of the discussion in meetings.


I'm not taking on as much as I possibly can. I have been quite selective about what I accept and refuse, and I have turned down work this year.

At the same time though, I am actively reaching out on potential projects (e.g. sent emails this weekend) and just am not hearing back much at all. There's no question that there's less money around.

At companies I interact with, there absolutely have been budget cuts, layoffs, and certain project killed.


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## investor65 (Aug 3, 2021)

We've been on the greatest bull market of all time (started in 2009). It has been a fed-induced super bubble as Mr. Grantham says. It's not gonna go up forever. The fed no longer has our backs. Don't fight the fed on the way up, and don't fight the fed on the way down. To me, the trend is clearly downward.

Ray Dalio says we could see another 20% decline from here.


https://finance.yahoo.com/news/blue-chip-stocks-hold-better-133647474.html



Here's a good article by Ron Insana of CNBC on why he thinks the bear market is not over.








Op-ed: Tune out the forecasters. Here’s how investors should approach this bear market


There’s no shortage of commentary on where the economy and the market are heading next. Long-term investors should stick to their disciplines.




www.cnbc.com


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## james4beach (Nov 15, 2012)

A nice bit from Jonathan Ferro on Bloomberg Surveillance, from this morning:

​We've just had a 10 year long monetary policy experiment. Trillions of dollar of QE; zero rates forever; negative interest rates at the ECB for about 8 years; trillions of negative yielding debt... not just sovereigns but corporate debt as well.​​And are we to believe that after 10 years of that, when you blow it up there aren't big consequences from that which last a bit longer than a couple quarters?​​
He made a small mistake there though. It's really been a 13 year long monetary experiment, starting in 2008 when the Federal Reserve began zero rates and QE, with aggressive purchases of debt. And let's not forget that ultimately we can thank greedy Wall Street banks and their lobbyists, who are the ones that constantly pushed for government and Federal Reserve bailouts and assistance. That's what really put us on this path --- rich Wall Street and Bay Street gamblers who refused to accept losses. Refused to see their assets fall. Refused to become poor.


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## james4beach (Nov 15, 2012)

from reddit WSB (computer-generated art)


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## doctrine (Sep 30, 2011)

Markets only slightly above June lows. New yearly lows could create more panic. I expect more panic because the Fed is showing no signs of relenting. Certainly, they are forcing major recessions and economic damage. I am quite confident cuts will happen again eventually. They are just breaking the economy so much. But I am not prepared to go into that trade just yet. Fed banks seem intent on causing more havoc. Don't fight the fed and all that.


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## Thal81 (Sep 5, 2017)

Looks like we're set for another bloodbath in the markets today. Sigh. Just a month ago it looked like we were getting out of this.


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## MrBlackhill (Jun 10, 2020)

Thal81 said:


> Looks like we're set for another bloodbath in the markets today. Sigh. Just a month ago it looked like we were getting out of this.


S&P500 won't reach new all-time highs for a while. Certainly not in 2023, maybe even new lows. And most likely not in 2024 either.


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## Gator13 (Jan 5, 2020)

I am at a new low for the year.


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## james4beach (Nov 15, 2012)

Gator13 said:


> I am at a new low for the year.


I think that's going to be the case for nearly everyone.

There really isn't much of an escape in a situation like this. Stocks, bonds, commodities, real estate ... everything is falling. (The only place you can really hide out is cash and GICs).

Wait it out and stick to your investment plan. I will review all my accounts after today's close and make sure I'm still invested according to the original plan.


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## Gator13 (Jan 5, 2020)

I haven't bought or sold since the beginning of the year. I have been accumulating cash since then, but that is only because we want the cash on hand for our next property purchase. If it wasn't for that, we would have been buying all the way along similar to past years.

It's been a roller coaster of a year. 
March 22nd: +6.2%
July 14th: -6.3%
August 18th: +1.1%
As of now: -6.7%

On a positive note, increases to dividends & distributions have our annualized investment income has increased.


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## AltaRed (Jun 8, 2009)

MrBlackhill said:


> S&P500 won't reach new all-time highs for a while. Certainly not in 2023, maybe even new lows. And most likely not in 2024 either.


I agree there will be more pain to come. While central bank rate increases have totaled ~3 percentage points so far this year, all indications (forecasts) are for an additional ~1.5+ percentage points (additional 50%) from this point through to end of 2023. Debt servicing will become an increasing burden as more debt terms are maturing and need to be rolled over.

The cleansing is an important part of healthy markets, especially those who have taken out HELOCs, and companies who have floated short term unsecured debt. Taking on debt has to come at a realistic cost....not some artificially suppressed level.


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## londoncalling (Sep 17, 2011)

Many predicted the market movement in the summer was a bear market rally and would not be sustained. The question remains is will we see weeks on end with daily downward movement or will volatility reign? Most people will stick it out longer if there are movements up and down even if we see lower highs and lower lows than many days in a row of red on the screen. The challenge for me will be holding on to dry powder long before we see the market recover. Like many others here I am in the red for the year but keep adding and watching dividend increase announcements. When the announcement of cuts become a regular occurrence, prices will drop further and scare off more investors. I haven't seen a cut since summer 2020.


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## Covariance (Oct 20, 2020)

londoncalling said:


> Many predict the market movement in the summer was a bear market rally and would not be sustained. The question remains is will we weeks one end with daily downward movement or will volatility reign. Most people will stick it out longer if there are movements up and down even if we see lower highs and lower lows than many days in a row of red on the screen. The challenge for me will be holding on to dry powder long before we see the market recover. Like many others here am in the red for the year but keep adding and watching dividend increase announcements. When the announcement of cuts become a regular occurrence, prices will drop further and scare off more investors. I haven't seen a cut since summer 2020.


I look at the broad equity index this way:

Will trade in a range until we receive a signal that Fed tightening is slowing. Whether we are at the bottom of this range remains to be seen. 

Will go down further if earnings (in general) deteriorate or are expected to do so significantly. Q3 earnings will start rolling out next month. We will see what companies provide in terms of future guidance. This will be decisive in terms of setting up whether the index moves lower, or holds up and stays in the range.


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## james4beach (Nov 15, 2012)

Covariance said:


> Will trade in a range until we receive a signal that Fed tightening is slowing. Whether we are at the bottom of this range remains to be seen.


What if inflation persists and the Fed has to keep raising rates for the next two years?


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## AltaRed (Jun 8, 2009)

It is not an 'if' they have to raise more. They do have to continue reaising but I think that will be over by the end of 2023 and some easing might then occur. It is a matter of how much. The average bear market lasts something like 15-18 months and the S&P500 drops in the order of ~35%. We are not done yet.


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## Covariance (Oct 20, 2020)

james4beach said:


> What if inflation persists and the Fed has to keep raising rates for the next two years?


I assume your question is what happens to equities, and you mean inflation/rates persisting beyond what is already expected in forward rates, futures. I would say two possibilites. Scenario one, if we get month by month disappointing news then equities grind lower. Scenario two, the rate increases to a point that precipitates widespread lower guidance, withdrawn guidance from companies which in turn causes a disorderly move down.


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## londoncalling (Sep 17, 2011)

AltaRed said:


> The average bear market lasts something like 15-18 months and the S&P500 drops in the order of ~35%. We are not done yet.


Average is the key word to this statement. Many are banking on this being your average bear. There is a strong possibility it will be longer. There was a long period of low rates and great equity returns. I am not wanting a prolonged bear but from a dollar cost averaging perspective it is to my advantage. This contradicts the mantra of its total return that matters.


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## AltaRed (Jun 8, 2009)

FWIW, in another forum, it was mentioned the average bear was under a year... not 15-18 months. I suppose that depends on how various pundits actually describe a bear market, with the former (<1 year) defined as peak-to-trough in the market. Using that definition, I think the trough will be sometime circa 1Q-2Q 2023. Recovery to a new high will take far longer. My crystal ball is now showing clouds so I will stop before I dig any deeper.


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## investor65 (Aug 3, 2021)

I personally believe the market is headed much lower.
It has gone almost parabolic during the pandemic.
As Dr. Burry says, parabolas never end well.


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## MrBlackhill (Jun 10, 2020)

investor65 said:


> I personally believe the market is headed much lower.
> It has gone almost parabolic during the pandemic.
> As Dr. Burry says, parabolas never end well.


You have to look at this on a log scale though.

3,600 is pretty near a fair value. But with the upcoming recession, we should go a bit lower until we come back up to 3,600 after 2024.


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## MrBlackhill (Jun 10, 2020)

S&P500 reached new lows today!


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## sags (May 15, 2010)

Lately some of the discussions on CNBC are about investors piling into fixed income.

Warren Buffet is sitting on $106 Billion in free cash in T-Bills and fixed income. He has been buying here and there but is still looking.

He is raking in the cash while patiently waiting and watching like a hawk on a telephone pole.

Maybe he is waiting for a juicy company loan bailout.....like he has done in the past.

Your business need some cash ?.....come see Uncle Warren.


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## cainvest (May 1, 2013)

MrBlackhill said:


> S&P500 reached new lows today!


Yup, buckle in ... the down side will likely continue.


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## investor65 (Aug 3, 2021)

One scenario is that we could see a bottom at the Nov midterms. Alot of people say there could be a red wave.
This has always been the worst time of the year for stocks.


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## m3s (Apr 3, 2010)

MrBlackhill said:


> S&P500 reached new lows today!


Since 2020


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## MrBlackhill (Jun 10, 2020)

m3s said:


> Since 2020


I wonder if we'll see new lows lower than the 2020 crash. That would be a pretty nice crash.


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## cainvest (May 1, 2013)

MrBlackhill said:


> I wonder if we'll see new lows lower than the 2020 crash. That would be a pretty nice crash.


Unlikely indexes would fall below the lowest 2020 levels IMO. Some stocks might though.


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## MrBlackhill (Jun 10, 2020)

cainvest said:


> Unlikely indexes would fall below the lowest 2020 levels IMO. Some stocks might though.


Yes, I also believe it's unlikely.


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## peterk (May 16, 2010)

As of today the S&P 500 is only 8% above it's pre-covid 2020 peak and the TSX is only 4% above...

If you think this is a new "era" of high interest rates (higher than 2019-2020) then these % changes don't mean much I suppose. But if you think this is just a short term blip in continued debt-fueled low interest growth, then these prices must be a sale compared to Feb. 2020.

Cumulative permanent inflation from the last 2.5 years, plus however much consolidation of commerce into big public corporations from all the non-traded small businesses that were destroyed during covid, must make the stock market worth much more than 5-10% higher than Feb 2020 prices.


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## TomB16 (Jun 8, 2014)

With what is happening in Asia, I expect the blood to start flowing in late Q4 and well into next year.


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## Covariance (Oct 20, 2020)

Not sure if this is short covering, or settling the double bottom.


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## Thal81 (Sep 5, 2017)

Bear market is cancelled!
/s


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## sags (May 15, 2010)

Yup.......good times are back again.


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## cainvest (May 1, 2013)

Thal81 said:


> Bear market is cancelled!
> /s


A one day bull market run ... woohoo!


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## londoncalling (Sep 17, 2011)

Thal81 said:


> Bear market is cancelled!
> /s


Bear market is postponed.


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## Synergy (Mar 18, 2013)

The dead cat has officially bounced. The market is just trying to suck a little more money out of everyone!


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## james4beach (Nov 15, 2012)

Synergy said:


> The dead cat has officially bounced. The market is just trying to suck a little more money out of everyone!


When in doubt, I like to look at the moving averages such as the 200 day moving average (simple or exponential).

Currently this is still showing a clear downtrend in global markets. I don't think there is any reason to turn bullish unless the price gets above the 200 day.

Additionally, these wild daily swings (like stocks up several %) isn't really a healthy thing to see. Bonds are also showing huge daily % changes...those aren't the kind of things you'd see in a normal bull market.


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## Covariance (Oct 20, 2020)

I also need to see stability in the bond market first, before moving in an expectation that a bottom (in equities) has been set.

We haven’t started the recession yet, so calling a new up trend seems highly premature.

For clarity, I am referring to to the macro trend. Not day to day price movement. Further, I am selectively adding positions which I think have reached good entry points, just not the market at large.


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## milhouse (Nov 16, 2016)

There's obviously a number of bear market rallies during these bear markets. Great for traders but I can't play much of a timing game. I know I'd be constantly second guessing myself.


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## james4beach (Nov 15, 2012)

Covariance said:


> I also need to see stability in the bond market first, before moving in an expectation that a bottom (in equities) has been set.


Totally agree. It might be good to watch SHY and IEF as indicators of what the US treasury market is doing. If you see good price support on these and stability, I think that supports the idea of a bottom.

Big picture though, the market is damned confusing and I think a person will drive themselves mad trying to guess at whether it's going up or down.

Diversified asset allocation solves this. An investor just has to stick to their allocation targets and rebalance when they they diverge too much. This automatically accomplishes "buy low, sell high" --- still to this date, it's the most beautiful systematic investment technique I've seen.


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## james4beach (Nov 15, 2012)

Pretty amazing looking at my individual stocks today. Everything is down, I think the only things that are positive are ZSP (due to USD increasing) and XEG

Gold also positive


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## Faramir (11 mo ago)

Synergy said:


> The dead cat has officially bounced. The market is just trying to suck a little more money out of everyone!


I agree. Can still make money on dead cats by playing the short term. We are going into a serious recession, despite what Biden fanboys may say. I don't buy these arguments that inflation peaked in July. More inflationary pressures and an unsure Federal Reserve.


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## cainvest (May 1, 2013)

Synergy said:


> The dead cat has officially bounced.


Eight more bounces to go before the bottom.


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## TomB16 (Jun 8, 2014)

We have been buying a bit of stock the last couple of weeks, including orders for a building materials company that just filled this morning.

That company is a nice distributor and we have been enjoying it for several years. In 2020, it went above my guestimation of value so we haven't expanded that position until today when it is comfortably under my value level again.

The best performing parts of my portfolio were purchased before the COVID era lunacy. The position I expanded this morning could easily go down for the next while and I'm OK with that. If it goes down much, I will expand the position further. I expect this company to perform well through the next wave of market euphoria.

This is a great time for people who want to own companies. We can buy more of the company for the same money.


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## Thal81 (Sep 5, 2017)

Bear market is back on!


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## undersc0re (Oct 7, 2017)

With so many boomers retired/retiring and people’s budgets strained due to higher prices and interest rates combined with homes not creating wealth wouldn’t stock markets slowly plummet with these people taking out investments and not buying as many products from these companys on the stock market. Seems to be a strange financial time right now, we have high oil prices and rapidly rising rates but our dollar is plummeting….


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## AlwaysMissingTheBoat (8 mo ago)

undersc0re said:


> With so many boomers retired/retiring and people’s budgets strained due to higher prices and interest rates combined with homes not creating wealth wouldn’t stock markets slowly plummet with these people taking out investments and not buying as many products from these companys on the stock market. Seems to be a strange financial time right now, we have high oil prices and rapidly rising rates but our dollar is plummeting….


And the country has maintained strong employment figures all the while. Many say that will not remain true as interest rates continue to rise, but we also have the phenomenon of massive numbers of the tail-end of the Boomer generation retiring. And that is leaving many, many vacancies.

Interesting times indeed.


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## MrBlackhill (Jun 10, 2020)

AlwaysMissingTheBoat said:


> And the country has maintained strong employment figures all the while. Many say that will not remain true as interest rates continue to rise, but we also have the phenomenon of massive numbers of the tail-end of the Boomer generation retiring. And that is leaving many, many vacancies.
> 
> Interesting times indeed.


Yup, yup, look at this. Another 5-10 more years and we'll have a huge issue.

The whole animation of the age pyramid also show the crazy times we've been through and the even crazier times to come.















Age Pyramids


Age pyramids are dynamic applications that allow users to see the evolution of the age structure of the Canadian population over a given time period and for selected geographies.




www12.statcan.gc.ca


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## doctrine (Sep 30, 2011)

Thal81 said:


> Bear market is back on!


It's certainly not good out there, but I typically don't 'renew' the bear market until a new low is made. We are hovering about +1% above the 30 Sep lows even though the market is doing its best to get there in the last hour of trading today. Making a new bear low is significant, but not making a new bear low can also be interesting. Sooner or later, a new low won't be made.


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## james4beach (Nov 15, 2012)

undersc0re said:


> With so many boomers retired/retiring and people’s budgets strained due to higher prices and interest rates combined with homes not creating wealth wouldn’t stock markets slowly plummet with these people taking out investments and not buying as many products from these companys on the stock market.


That's a good point, but there are so many different factors at play. For example if inflation remains elevated in the years ahead, stocks might be a better place to be than some of the alternatives, like cash and bonds.


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## londoncalling (Sep 17, 2011)

It will be interesting to see how this bear plays out. People often use historic durations as a point of reference but each one is unique. Without knowing when it will end there is no harm in using the historic information as your guide as long as you are prepared to have it run longer and deeper than your forecast. So many events which could result in bearish or bullish sentiment. US election, Inflation, Interest rates, War in Europe, Currency spreads etc. And those are just some the ones we are aware of. 

Some great discussion above re: demographics, strong economic indicators not resulting in a sustained reversal. Fear is starting to set in. I remember the fear in 2008 but I don't remember at what levels people really panicked.


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## james4beach (Nov 15, 2012)

londoncalling said:


> Some great discussion above re: demographics, strong economic indicators not resulting in a sustained reversal. Fear is starting to set in. I remember the fear in 2008 but I don't remember at what levels people really panicked.


I agree, I think the fear is starting now. For the first time I am starting to get anxious about my losses.


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## kcowan (Jul 1, 2010)

Yes the bear has yet to appear!


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## Freedom2022 (Oct 14, 2021)

londoncalling said:


> I remember the fear in 2008 but I don't remember at what levels people really panicked.


Observe the faces of the US treasury secretary and the Fed chairman. When they look stress out. then you know. Check the photo of Hank Paulson in 2008.


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## Thal81 (Sep 5, 2017)

Interesting news article in TDDI this morning:



Spoiler: Click to expand



11:16 AM EDT, 10/05/2022 (MT Newswires) -- National Bank said Tuesday that the Canadian exchange-traded funds collected $1.9 billion in net flows in September, driven almost entirely by the demand for cash-like ETFs.

"The outflowfrom Canada was mostly concentrated in institutional redemptions from XIU, with smaller withdrawals coming from other broad Canadian ETFs," the analysts said.

Equity ETFs lost $436 million, concentrated in marketcap weighed ETFs for the Canadian region. iShares S&P/TSX 60 Index ETF (XIU.TO) displayed its usual institutional activity, which in September resulted in redemptions of $737 million.

Low-cost, cap-weighted passive ETFs for various regions like Canada (XIC, HXT), international developed (ZEA), and the US (HXS) also suffered outflows, the analysts said.

Fixed Income ETF flows showed clear signs of flight-to-safety while multi-asset ETFs saw a rare month of outflows of $36 million. Crypto-asset ETFs saw redemptions of $81 million, National Bank added.

National Bank said 28 ETFs launched in September, taking the total number to 1,271 in Canada.



Is this a sign of capitulation if the institutional investors are cashing out? I think so. Maybe the bottom is in sight! What I don't get is why they're selling out more of Canada region than other markets. Hhmmf.


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## MrBlackhill (Jun 10, 2020)

New lows for NASDAQ


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## londoncalling (Sep 17, 2011)

Thal81 said:


> Interesting news article in TDDI this morning:
> 
> 
> 
> ...


This is not a sign of capitulation. Institutional investors are moving money to safer options like fixed income which has been long ignored due to the poor return. They are also trying to preserve their performance record for 2022. Canada has not taken as large a hit as other funds (Europe, emerging markets). It looks better for the institution to have a return of -10% when the stock market returned - 20%. When providing brochures, they have to use an equivalent benchmark but they certainly can say it to customers who are worried about their declining portfolios. 

The Nasdaq at new lows is a better sign that the bottom isn't in yet and likely won't until the interest rates stop climbing.


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## james4beach (Nov 15, 2012)

Anyone else hurting after this week?


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## Faramir (11 mo ago)

Yes, my gold stocks just can't seem to get a break.


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## londoncalling (Sep 17, 2011)

I haven't taken a close look but definitely down on the week.


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## AlwaysMissingTheBoat (8 mo ago)

Looks like the bear market is on hold again. We're coming off a few "up" days in most global stock exchanges and futures are looking promising due to more U.S. major corporations posting better than anticipated earnings. 

But the fiscal tightening cycle is far from over, so Mr. Bear rests, but will resume terrorizing in the days, weeks and months ahead.


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## OptsyEagle (Nov 29, 2009)

Just keep in mind that stocks do not go down because the fiscal tightening cycle continues. They go down because the fiscal tightening cycle continues deeper or longer then investors expected. At some point in time stocks will start their long move back up and it will start long before the tightening cycle is over.

Just something to keep in mind while you ponder all these new bargains that will remain bargains no matter how long the Fed continues their work.


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## AlwaysMissingTheBoat (8 mo ago)

OptsyEagle said:


> Just keep in mind that stocks do not go down because the fiscal tightening cycle continues. They go down because the fiscal tightening cycle continues deeper or longer then investors expected. At some point in time stocks will start their long move back up and it will start long before the tightening cycle is over.
> 
> Just something to keep in mind while you ponder all these new bargains that will remain bargains no matter how long the Fed continues their work.


You're right, no doubt, but based on the headlines I see from around the world, I don't think we're anywhere near a long-term rebound. Winter 2022-23 is going to bring a lot of market pain, IMO.


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## OptsyEagle (Nov 29, 2009)

AlwaysMissingTheBoat said:


> You're right, no doubt, but based on the headlines I see from around the world, I don't think we're anywhere near a long-term rebound. Winter 2022-23 is going to bring a lot of market pain, IMO.


You may be right but what I am saying is that everything you have stated above will be present "when" the bottom forms. Reading headlines and getting a feeling for the future will only distort the proper thinking one needs to be doing to get the best pricing on the investments they make.


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## AlwaysMissingTheBoat (8 mo ago)

OptsyEagle said:


> You may be right but what I am saying is that everything you have stated above will be present "when" the bottom forms. Reading headlines and getting a feeling for the future will only distort the proper thinking one needs to be doing to get the best pricing on the investments they make.


I'd have to change my screen name if I had it all figured out!


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## OptsyEagle (Nov 29, 2009)

No one has it all figured out. 

My point is that an investor should always be wondering less about things like what the Fed may do in the future and what that should do to the stock market and wonder more about what "other investors" are thinking about what the Fed may do in the future and what those investors will think will happen to the stock market. They are a little more predictable since we know they will be wrong at the bottom. That we know for sure, because until the majority of them are wrong there will not be a bottom. The majority of investors being wrong is what makes the bottom.

Bull markets begin at the point of maximum investor pessimism. It's a law of investing physics that is rarely ever broken. Never forget that.


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## AlwaysMissingTheBoat (8 mo ago)

OptsyEagle said:


> No one has it all figured out.
> 
> My point is that an investor should always be wondering less about things like what the Fed may do in the future and what that should do to the stock market and wonder more about what "other investors" are thinking about what the Fed may do in the future and what those investors will think will happen to the stock market. They are a little more predictable since we know they will be wrong at the bottom. That we know for sure, because until the majority of them are wrong there will not be a bottom. The majority of investors being wrong is what makes the bottom.
> 
> Bull markets begin at the point of maximum investor pessimism. It's a law of investing physics that is rarely ever broken. Never forget that.


There's no way to know for sure in the present, but I don't believe we've seen maximum investor pessimism, or even close to it. Do you?

There hasn't been market capitulation, IMO. No extensive fear-driven sell off. It has happened over a day or two here and there, but I think we'll see sustained "blood in the streets" over the coming months that will be a true signal to dive in with large buys. That's what I'm waiting for now. Maybe I'll never see it, but I'm willing to take that gamble.


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## KaeJS (Sep 28, 2010)

I've got my LOC ready.
If we see 3200 sp500, I'll tap a little and take a nibble. The further down we go from there, the more I will pull from the LOC.

But I'm not pulling anything until 3200, if it ever hits.


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## MrBlackhill (Jun 10, 2020)

KaeJS said:


> I've got my LOC ready.
> If we see 3200 sp500, I'll tap a little and take a nibble. The further down we go from there, the more I will pull from the LOC.
> 
> But I'm not pulling anything until 3200, if it ever hits.


Same. No matter how high are the rates, if the market truly crashes for real, I'll use LoC.


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## OptsyEagle (Nov 29, 2009)

AlwaysMissingTheBoat said:


> There's no way to know for sure in the present, but I don't believe we've seen maximum investor pessimism, or even close to it. Do you?
> 
> There hasn't been market capitulation, IMO. No extensive fear-driven sell off. It has happened over a day or two here and there, but I think we'll see sustained "blood in the streets" over the coming months that will be a true signal to dive in with large buys. That's what I'm waiting for now. Maybe I'll never see it, but I'm willing to take that gamble.


Well sometimes you get a big downside blow off and many times you don't. It is always difficult to predict the point of maximum pessimism because investors can always get more pessimistic. Not every bear sells every stock they own when they get negative on the investment markets so if something more negative then expected happens in the future those bears can proceed to sell more of their stocks and drive the market down further.

What I tend to do is keep an eye on the emotional opinion of other investors and attempt to do the opposite at more opportune times. I monitor many indicators and most, as of last week anyway, were hitting some pretty bearish readings. That is usually a good time to nibble. It does not guarantee immediate success, because nothing can tell what the future will inevitably bring us, but if you invest when investors are very, very bearish, there is usually more upside in a positive surprise then downside from a negative surprise. That is about all you can be sure of. Kind of like being offered a head start in a running race. It does not mean you will win the race but it certainly improves your odds.

In any case, even if you are right and the Fed gets really hawkish and markets have a selling blow off, at that time you will still be in the same position where every headline you read will be telling you that things are going to get worse...or...the stock market will already be at least 15% to 20% higher where those headlines start to identify something positive. So in other words, responding to what most investors appear to agree on will have you "always missing the boat".


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## MrBlackhill (Jun 10, 2020)

I was wondering... When do we start feeling the pain of a bear market / market crash?

Since I'm still accumulating, I couldn't care less how much the market drops... I'm even happy about it. I'm happy when the market goes up because my net worth increases, I'm happy when the market goes down because I buy cheaper.

I guess the true pain comes at retirement or near retirement? I mean, if I was about to reach my retirement goal and suddenly the market drops -40% and I have no idea how long it'll take to move back up, I'd be pissed. Same if I had just retired. Same if I was in the middle of my retirement and wondering if I'll have enough money.

But otherwise... This is interestingly the 5th worst drawdown in the past 50 years. Wow, really? I guess only the top 3 drawdowns (1973, 2000, 2007) were truly painful as the market dropped by more than -40% and it took many years to recover. I'm expecting the same intensity of market crash, though I'm in my mid-30s, I'm not near my retirement (I wish, though), so I feel absolutely no pain at all, so far. And that's with 100% equities.


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## KaeJS (Sep 28, 2010)

MrBlackhill said:


> I was wondering... When do we start feeling the pain of a bear market / market crash?
> 
> Since I'm still accumulating, I couldn't care less how much the market drops... I'm even happy about it. I'm happy when the market goes up because my net worth increases, I'm happy when the market goes down because I buy cheaper.
> 
> ...


Likewise.

I really don't care either way. I just keep buying. Green, red, doesn't matter to me.

And if you did everything properly when you are retired, you shouldn't care much about the drops in the net worth but more so any reduction in income (dividends, for example). Although, some people do sell shares... But I'm not going to get into the whole debate about how selling shares is the same as taking dividends lol


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## AltaRed (Jun 8, 2009)

There is some relevant discussion in this thread It’s time for retirees to get out of bonds about how to mitigate down drafts in retirement. Have some cash and cash equivalents set aside to avoid tapping into invested capital during at least the major part of a down turn. I've been through the 2008-09 financial crisis during retirement so far and now this 2022-2X one which I suspect won't be as severe as the financial crisis.

FWIW, I am down 14.2% YTD on a mostly equity portfolio. The major down components are the ex-Canada ETF holdings which are all bear market down, but is mitigated partly by the 10% drop in the loonie. Plus I have some prefs and my Cdn component is almost exclusively blue chip dividend paying stocks and the TSX is down less than 15% so far. Being down only 14.2% YTD is nothing to lose sleep over. I expect I may be down 20% before this sucker turns around.

Edit: Made an error on YTD performance calculation. Should be down 14.2%


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## londoncalling (Sep 17, 2011)

Most investors and non-investors are not panicking yet about the market despite it being the 5th worst drawdown in as many decades. I think the new inflationary environment is capturing a lot of people's attention with concerns of how to maintain lifestyle. Concerns around portfolio take a back seat to a decrease in disposable income and worries about rising mortgage rates/payments and declining property values. For those that have lived through it or studied it extensively, they realize that current performance happens from time to time and the best bet is to stay the course. In all fairness, interest rates are not that far off of the historical average.


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## AlwaysMissingTheBoat (8 mo ago)

OptsyEagle said:


> Well sometimes you get a big downside blow off and many times you don't. It is always difficult to predict the point of maximum pessimism because investors can always get more pessimistic. Not every bear sells every stock they own when they get negative on the investment markets so if something more negative then expected happens in the future those bears can proceed to sell more of their stocks and drive the market down further.
> 
> What I tend to do is keep an eye on the emotional opinion of other investors and attempt to do the opposite at more opportune times. I monitor many indicators and most, as of last week anyway, were hitting some pretty bearish readings. That is usually a good time to nibble. It does not guarantee immediate success, because nothing can tell what the future will inevitably bring us, but if you invest when investors are very, very bearish, there is usually more upside in a positive surprise then downside from a negative surprise. That is about all you can be sure of. Kind of like being offered a head start in a running race. It does not mean you will win the race but it certainly improves your odds.
> 
> In any case, even if you are right and the Fed gets really hawkish and markets have a selling blow off, at that time you will still be in the same position where every headline you read will be telling you that things are going to get worse...or...the stock market will already be at least 15% to 20% higher where those headlines start to identify something positive. So in other words, responding to what most investors appear to agree on will have you "always missing the boat".


Would I like to pick the bottom? Sure would! Am I likely to do that? Nah, not very likely at all. I realize that.

I haven't been idle. I've purchased shares of various stocks over the past few months near one-year lows. But the bulk of the profit from a home sale last year remains in a high-interest savings account with a decent introductory rate.

And now I watch and wait. If we see a major dip in the markets in the months ahead, I'll buy more. If the drop proves modest and the recovery comes sooner than I expected and I missed out, then I'll settle for GICs, which by that point could be at 6-7% interest, maybe higher. I can live with that.


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## AltaRed (Jun 8, 2009)

The vast majority of investors and consumers today (less than about 70 years old) have never experienced a serious bout of inflation and don't really understand what is required to tame it. Add cheap credit post-financial crisis to that mix and one has the potential for a further market (stock and bond) declines. As post #283 articulated, there is major focus on finding ways to offset decreasing disposable income due to inflation and increasing debt servicing rates. 

I suspect most consumers are trying to sort out how they can maintain their current standard of living but are failing to recognize they will not be able to do so. It didn't happen in prior bouts of inflation and until we see a considerable drop in consumer discretionary spending* which is what is required to bring inflation down, the pain will continue. The average Canadian is going to have to accept a decrease in standard of living (consumption) for at least many months to come.

* Such as a material drop in air travel and hotel occupancy, Home Depot sales, auto and furniture buying, etc, etc.


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## Covariance (Oct 20, 2020)

AltaRed said:


> The vast majority of investors and consumers today (less than about 70 years old) have never experienced a serious bout of inflation and don't really understand what is required to tame it. Add cheap credit post-financial crisis to that mix and one has the potential for a further market (stock and bond) declines. As post #283 articulated, there is major focus on finding ways to offset decreasing disposable income due to inflation and increasing debt servicing rates.
> 
> I suspect most consumers are trying to sort out how they can maintain their current standard of living but are failing to recognize they will not be able to do so. It didn't happen in prior bouts of inflation and until we see a considerable drop in consumer discretionary spending* which is what is required to bring inflation down, the pain will continue. The average Canadian is going to have to accept a decrease in standard of living (consumption) for at least many months to come.
> 
> * Such as a material drop in air travel and hotel occupancy, Home Depot sales, auto and furniture buying, etc, etc.


Agreed. Consumption will collapse inward. Line of credits will be maxed out. One doesn’t need to have been alive for the French Revolution, 20’s market crash, between war German inflation, or the Volker years to grasp the essential lessons. But one does need to have studied history. It’s a failing of education.


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## cainvest (May 1, 2013)

AltaRed said:


> It didn't happen in prior bouts of inflation and until we see a considerable drop in consumer discretionary spending* which is what is required to bring inflation down, the pain will continue.


And a drop in overall spending could also help the current supply chain issues in many markets.


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## TomB16 (Jun 8, 2014)

cainvest said:


> And a drop in overall spending could also help the current supply chain issues in many markets.


This post is a Rosetta Stone for the glass is half full perspective.  


Can you imagine a board meeting discussion: "Good news! Our supply side problems have been solved!" "What was the solution?" "Lowered demand!  "


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## cainvest (May 1, 2013)

TomB16 said:


> This post is a Rosetta Stone for the glass is half full perspective.
> 
> 
> Can you imagine a board meeting discussion: "Good news! Our supply side problems have been solved!" "What was the solution?" "Lowered demand!  "


Actually it's a positive board meeting discussion... 

"Good news, we're not pissing off a bunch of clients because we can't deliver our products on time". Followed by "Yes, people are getting sick of hearing ... _it's a supply chain issue, nothing we can do!_"


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## TomB16 (Jun 8, 2014)

cainvest said:


> Actually it's a positive board meeting discussion...


Sure. I think I follow.


Quick story. In the late 90s, I was on a field call at my employer when a customer came in, wanted to buy almost $200K of product, and the assistant manager was obnoxious, rude, and obstructive. It was an industrial setting so those sort of sales weren't super rare. The guy eventually went away with a confused look. I didn't work at that location so I asked what that was about as polite as I could. The assistant manager told me, with that product, they lose money on every sale so they work hard to sell as little as possible.

My gawd.


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## Faramir (11 mo ago)

Covariance said:


> Agreed. Consumption will collapse inward. Line of credits will be maxed out. One doesn’t need to have been alive for the French Revolution, 20’s market crash, between war German inflation, or the Volker years to grasp the essential lessons. But one does need to have studied history. It’s a failing of education.


The lack of education makes the masses ripe for misinformation clothed as something else. Governments love inflation. That's their dirty little secret. So they do what they can to manage expectations of the public. They claim inflation is benign, or just a short term aberration. They are aided by the Keynsian crowd in respect to inflation.


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## james4beach (Nov 15, 2012)

Covariance said:


> Agreed. Consumption will collapse inward. Line of credits will be maxed out.


But let's remember how we ended up here. Perpetually zero interest rates, QE, and easily availability of credit caused artificially high spending and economic activity.

What came before today is abnormal. They pumped up the economy for the last 13 years ... it never was natural economics at play. Not even in 2018 or 2019.

Home prices were greatly inflated, everyone got HELOCs and started going crazy, businesses got loans they shouldn't have been able to get, etc. All of this was stimulating artificially high consumption.

It just persisted long enough that people came to think it was normal. Those homeowners with inflated home values, having fun with their HELOCs, all think that's normal -- but it's not.

But like with any drug, the drug addict always complains when the drug is taken away from them.


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## Faramir (11 mo ago)

james4beach said:


> But let's remember how we ended up here. Perpetually zero interest rates, QE, and easily availability of credit caused artificially high spending and economic activity.
> 
> What came before today is abnormal. They pumped up the economy for the last 13 years ... it never was natural economics at play. Not even in 2018 or 2019.
> 
> ...


I agree except for the timing. I would say they had been pumping the economy since the beginnings of the Clinton Administration. It just got warped from 2008 to now.


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## Money172375 (Jun 29, 2018)

james4beach said:


> But let's remember how we ended up here. Perpetually zero interest rates, QE, and easily availability of credit caused artificially high spending and economic activity.
> 
> What came before today is abnormal. They pumped up the economy for the last 13 years ... it never was natural economics at play. Not even in 2018 or 2019.
> 
> ...


I personally found granting credit much easier from 2000-2010, rather than 2010+.

early in my career, true equity lending existed. 35% in equity/down payment meant a virtual guarantee of approval without income confirmation. and IIRC, I believe there was a brief period of 40 year mortgage amortization’s.

Now, income needs to be verified and to service the debt. And often, it requires multiple sources of proof (ie. letter of employment, paystub, NOAs).

maybe it’s just my perception, but I found lending from 2010 on, very cumbersome and sometimes challenging. Qualifying rates, etc etc. Processes from a compliance standpoint also became way more complex.

Private lending and new processes/products around New Canadians, non-resident borrowing, HNW, rentAl borrowing has driven a lot of borrowing.


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## MK7GTI (Mar 4, 2019)

Are we expecting a market drop tomorrow? 1-2%?


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## Covariance (Oct 20, 2020)

MK7GTI said:


> Are we expecting a market drop tomorrow? 1-2%?


50/50. Care to elaborate on what you are concerned about?


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## MK7GTI (Mar 4, 2019)

Covariance said:


> 50/50. Care to elaborate on what you are concerned about?


Not concerned at all. Hoping for a drop as I have a couple of orders placed.


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## james4beach (Nov 15, 2012)

Covariance said:


> 50/50. Care to elaborate on what you are concerned about?


Yup, I give any day a 50/50 chance of going up or down


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## Gator13 (Jan 5, 2020)

james4beach said:


> Yup, I give any day a 50/50 chance of going up or down


Very good insight! 🙂


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## MrBlackhill (Jun 10, 2020)

Just saying... With today's euphoric bullishness upon the inflation data, the 10-year yield took a hit so the 10-year minus 3-month spread has gone even further down in the negative, which has been inverted for 2 weeks now.


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## AlwaysMissingTheBoat (8 mo ago)

MrBlackhill said:


> Just saying... With today's euphoric bullishness upon the inflation data, the 10-year yield took a hit so the 10-year minus 3-month spread has gone even further down in the negative, which has been inverted for 2 weeks now.


I'm going to be the guy who admits he doesn't know what this yield spread means. Can you tell me in layman's terms what we might expect as a result of this development?


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## m3s (Apr 3, 2010)

AlwaysMissingTheBoat said:


> I'm going to be the guy who admits he doesn't know what this yield spread means. Can you tell me in layman's terms what we might expect as a result of this development?


The 10-2 year yield spread is a reliable indicator for the economy. They inverted early this year before the market collapsed. A negative 10-2 yield spread has historically been viewed as a precursor to a recession, and it was true again this year.

It means the market is paying more for 2-year treasury than 10-year because the outlook is very poor. When the 6-month inverts 10-year it's even worse. Now we have the 3-month inverting the 10-year yield for a few weeks which is catastrophic.

Common JPow do something. Think of the poor Meta, Twitter and GM employees


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## MrBlackhill (Jun 10, 2020)

AlwaysMissingTheBoat said:


> I'm going to be the guy who admits he doesn't know what this yield spread means. Can you tell me in layman's terms what we might expect as a result of this development?


Here's an official source and then different sources. In a few words: when it's negative (inverted yield curve), expect a market crash within the next ~18 months.









The Yield Curve as a Leading Indicator


This model uses the slope of the yield curve, or the “term spread” between long- and short-term interest rates, to calculate the probability of a recession in the United States twelve months ahead.




www.newyorkfed.org













Yield Curve Indicates Stock Market is Strongly Overvalued


Based on the yield curve, the New York Federal Reserve currently predicts the odds of the US being in a recession in 12 months to be ~38%.




www.currentmarketvaluation.com












Current US Yield Curve Today (Yield Curve Charts)| GuruFocus


The current 1 month yield curve is 3.724%. Get more info on the current yield curve, inverted yield curve charts, and more.




www.gurufocus.com


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## james4beach (Nov 15, 2012)

So what's the consensus. Bear market is over?
Stocks and bonds go straight up now?

My portfolio was up 25 grand today. Absolutely ridiculous.

(this post is meant to be funny... nobody can predict where markets go next)


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## londoncalling (Sep 17, 2011)

Bear market rally. Although I was pleased to see my balance up considerably from yesterday. I am more interested in looking at what it will be this time next year in comparison to what it was in January.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> So what's the consensus. Bear market is over?
> Stocks and bonds go straight up now?
> 
> My portfolio was up 25 grand today. Absolutely ridiculous.
> ...


Dead cat bounce.


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## sags (May 15, 2010)

Maybe the Christmas bonuses are coming and the big traders want to do something hoping to close out on a happy note.


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## peterk (May 16, 2010)

MrBlackhill said:


> Dead cat bounce.


You said that the last 3 bounces.


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## cainvest (May 1, 2013)

peterk said:


> You said that the last 3 bounces.


6 more lives to go!


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## james4beach (Nov 15, 2012)

peterk said:


> You said that the last 3 bounces.


So he was right, 3 for 3 so far then?

Or did I miss your point?


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## AlwaysMissingTheBoat (8 mo ago)

Economist Justin Wolfers always seems to see a silver lining. Thoughts on his take here? Overly optimistic in his belief that the Fed can thread the needle?


__ https://twitter.com/i/web/status/1590703184799883269

__ https://twitter.com/i/web/status/1590703673575092224

__ https://twitter.com/i/web/status/1590704173754232832


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## AlwaysMissingTheBoat (8 mo ago)

^ Paul Krugman endorsed this series of tweets, if that makes any difference.


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## AlwaysMissingTheBoat (8 mo ago)

A couple more...


__ https://twitter.com/i/web/status/1590706616995041281


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## Covariance (Oct 20, 2020)

The good news is inflation may have started to slow. The bad news, it’s still over double the rate it needs to be and rates are going to go higher. Another 100 or more on the front of the curve is nothing to ignore. That said, financial markets will move well in advance and bottom out months before the actual economy bottoms out.


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## AltaRed (Jun 8, 2009)

I agree the good news is inflation has started to slow but we need to see a drop in job vacancies and an uptick in unemployment rate, both in the US and Canada, to take some heat out of labour cost increases.That has been one of the key dangers both BoC and US Fed have been worried about.....structural inflation. Until that happens, the central banks really cannot let off the pressure.

Also, Macklem yesterday said they are now seeing some decline in both shipping times and shipping rates as one example of supply chain pressures starting to back off. A lot more of these kinds of things need to show up before we can project declining inflation rates. It would be nice to see some sustained, and less volatile, Brent/WTI oil prices in the $80-85 range as well over the 5 winter months.


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## Covariance (Oct 20, 2020)

AltaRed said:


> I agree the good news is inflation has started to slow but we need to see a drop in job vacancies and an uptick in unemployment rate, both in the US and Canada, to take some heat out of labour cost increases.That has been one of the key dangers both BoC and US Fed have been worried about.....structural inflation. Until that happens, the central banks really cannot let off the pressure.
> 
> Also, Macklem yesterday said they are now seeing some decline in both shipping times and shipping rates as one example of supply chain pressures starting to back off. A lot more of these kinds of things need to show up before we can project declining inflation rates. It would be nice to see some sustained, and less volatile, Brent/WTI oil prices in the $80-85 range as well over the 5 winter months.


Absolutely. Unless inflation craters, the Fed will not feel they can take a risk letting up on rates with wage prices driving inflation. Continuing jobless claims, job openings reports are good real time indicators that might help assess when that starts to balance.

Re: BoC speech yesterday. That long run plan he has for immigration driving GDP growth is a big question mark for me. In the queue for analysis next year.


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## AltaRed (Jun 8, 2009)

We have little choice but to boost immigration to find the workers to fill job vacancies given our loq national fertility rate, the momentum and impact of boomer retirements (more than half of them have now retired), and lack of business investment (policy headwinds to invest in Canada) to boost productivity growth. Canada is a bit of a backwater when it comes to automation, robotics, and a transition to valued added goods and services to boost GDP. Nor do we have modern and efficient infrastructure to move goods.

Added: Examples: bottlenecks and capacity issues in the Port of Vancouver, inefficient road connections (it appears it will take another 20 years to fully twin the TCH between AB/BC border to Kamloops if they only do 5-10km per year). Trucks are jammed on the two lane highway. Time is money.


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## Covariance (Oct 20, 2020)

AltaRed said:


> We have little choice but to boost immigration to find the workers to fill job vacancies given our loq national fertility rate, the momentum and impact of boomer retirements (more than half of them have now retired), and lack of business investment (policy headwinds to invest in Canada) to boost productivity growth. Canada is a bit of a backwater when it comes to automation, robotics, and a transition to valued added goods and services to boost GDP. Nor do we have modern and efficient infrastructure to move goods.


Agreed. I'm just not convinced (yet) that it will lead to the BoC's projection for growth of the economy. If it doesn't happen, then we fall back on productivity improvement. I share your sense of how effective that will be.


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## james4beach (Nov 15, 2012)

Covariance said:


> The good news is inflation may have started to slow.


Maybe. Only the trailing CPI figures will tell us.

But I think the public is also misinterpreting this news. I saw on the news yesterday that they were reporting that "prices may start coming down".

That's not what is happening. The rate of increase is still very high. Maybe it decelerated from 8% pace of increase to 6% pace of increase. That still means prices are increasing at a fast pace, year on year.

Inflation could "ease" down to 6% rate of change, but that's still very high inflation which will require interest rates to go up dramatically from here. It could be that inflation is now stable at 6% and the BoC rate will have to get near 6% or even 7%.


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## AltaRed (Jun 8, 2009)

Sound bites are often poorly worded. Call it social media, especially Twitter, talk. What is really meant is the 'rate of price increases is coming down'. Just like inflation (which is a rate) is coming down, but it is not going negative.

if the current trend continues for another month or two, I will have some belief that the worst is over, another wave of major covid disruption notwithstanding. I am not seeing where the pundits are cautioning that a new severe variant is a wild card in their predictions. A possible triple whammy of flu, RSV and covid-19 is possible by Jan-Feb.


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## TomB16 (Jun 8, 2014)

Why are people stating supply chain problems are near an end? IC shortages look to be really bad for another year.

I don't take that as a prediction of IC supply being fixed in a year, just that it will be bad for another year at which time new guidance will be issued, just as happened in 2020 and 2021.

From what I can tell, new American fabs are not happening as quickly in base reality as they the PowerPoint presentation. With China embracing Zero Covid like QAnon clinging to a conspiracy theory, I wouldn't look to China to lift us out of this problem. Meanwhile, in North America, we are enjoying the cost of red tape and endless bureaucracy.

While I don't blame us for this problem, single sourcing our entire economy came with risks that were known before we drove down this road..


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## AltaRed (Jun 8, 2009)

Chips are only one aspect of supply chain shortages. I can't get more excited by them than resolution to a host of other supply chain issues and improvements. Macklem yesterday talked about reduced shipping times and costs, resolving port backlog issues and the like.

We had a variety of food shortages that are now dissipating in supermarkets as truck driver shortages to move all kinds of products are being resolved. Autos used to be stuck in rail yards because there were not people to load and unload them, and a lack of trucks for last mile delivery. My own new vehicle was stuck in a factory yard for 6 weeks earlier this year waiting to be loaded on a rail car. Other local customers had cars sitting in Calgary rail yards waiting to be loaded on trucks for the final leg to the Okanagan. Those are anecdotal examples of perhaps hundreds of supply chain issues that are slowly being resolved.

I am optimistic the majority of our supply chain issues will be resolved over the next 6 months.


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## AlwaysMissingTheBoat (8 mo ago)

AltaRed said:


> I am optimistic the majority of our supply chain issues will be resolved over the next 6 months.


Let's consider that possibility.

Let's consider perhaps another 100 basis point increase over two increments. That will put the squeeze on some homeowners (some of whom are already in trouble), but it also means that banks are going to collect more interest from a much greater number of clients. So the financial sector may be just fine, perhaps better off than today.

Maybe in six months China hastruly reopened, or is very close to it. 

Maybe in six months, the Russian/Ukrainian war is resolved. 

Even if half of that turns out to be true and there are no black swan events, the markets could push much higher. Heck a 0.3% "beat" on the last inflation report in the States caused the markets to go bananas. Imagine if some of those other catalysts come to fruition.


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## james4beach (Nov 15, 2012)

Personally I don't think this is a supply constrained inflation situation. I heard one economist talk about this... he said US production has significantly increased in many areas. Production and goods availability is way up, but demand remains strong.

I agree with the view that the inflation is demand-driven, meaning it's more likely a monetary phenomenon. Too many people feeling too rich, and having too much money to spend. The system was flooded with liquidity and stimulus, everyone became too wealthy and pockets are over-stuffed with cash @m3s

So I think jacking up interest rates is the right move. But after the recent Bank of Canada statements and interview with CBC, I'm worried they are losing their nerve. BoC governor sounds very timid about fighting inflation.


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## m3s (Apr 3, 2010)

james4beach said:


> I agree with the view that the inflation is demand-driven, meaning it's more likely a monetary phenomenon. Too many people feeling too rich, and having too much money to spend. The system was flooded with liquidity and stimulus, everyone became too wealthy and pockets are over-stuffed with cash @m3s
> 
> So I think jacking up interest rates is the right move. But after the recent Bank of Canada statements and interview with CBC, I'm worried they are losing their nerve. BoC governor sounds very timid about fighting inflation.


The money takes a long time to reverberate through the system

We have high inflation now and crashing assets values at the same time. So people with money are itching to invest as soon as they let off the rate hikes

There was a double peak of inflation in the 80s I think it was. History doesn't repeat but it often rhymes


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## m3s (Apr 3, 2010)

m3s said:


> There was a double peak of inflation in the 80s I think it was. History doesn't repeat but it often rhymes


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## AltaRed (Jun 8, 2009)

james4beach said:


> Personally I don't think this is a supply constrained inflation situation. I heard one economist talk about this... he said US production has significantly increased in many areas. Production and goods availability is way up, but demand remains strong.
> 
> I agree with the view that the inflation is demand-driven, meaning it's more likely a monetary phenomenon. Too many people feeling too rich, and having too much money to spend. The system was flooded with liquidity and stimulus, everyone became too wealthy and pockets are over-stuffed with cash @m3s


Inflation is caused when supply cannot meet demand driving prices up. That either means supply disruptions (of a wide range of possibilities including labour shortages) reducing production of goods, or excessive demand by consumers with excess billions saved in bank accounts, or some of both. The way to solve it is by eliminating supply bottlenecks, reducing demand of goods and services, or both. 

Re-shuffling of supply lines globally is having some effect as is investment in incremental supply but that will take time. Reducing demand will also take time while increasing debt servicing costs works its way through the system as will the 'working off' of excess savings on deposit. The data is showing some trends in the right direction on both the supply side and demand side. 

That is the reason why I say we will seem some material change in about 6 months where supply and demand come into closer balance in a variety of goods and services. If we follow the pattern of post #326, it takes 2 years for inflation to get back to 'normal'. Central bankers also know a lot more today than they did 40-50 years ago as well.


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## james4beach (Nov 15, 2012)

AltaRed said:


> Central bankers also know a lot more today than they did 40-50 years ago as well.


They might know more than in the past but I think economists are still fumbling in the dark.

Central banks were aggressively pumping liquidity into the system for the last 13 years. The pandemic may have been a spark, but I think their insane levels of QE + ultra low interest rates in the last 13 years were the set-up. World markets have been flooded with liquidity for 13 years straight.

Economists (in the media anyway) are saying the the economy was "stable" and are saying problems started after January 2020. I think they're wrong. There were plenty of signs of excess and artificial demand before 2020.

I agree that some things are moving in the right direction now, but I don't have much confidence in whatever models the economists are using. These guys don't even acknowledge that QE from 2009-2019 may be a big reason we've ended up with high inflation today.


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## Gator13 (Jan 5, 2020)

There are a lot of products that are still in very short supply. Shortages of products combined with high energy and food prices are definitely fueling inflation. It will take quite some time for manufacturing to catch up, albeit with high production costs.


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## Covariance (Oct 20, 2020)

I feel the issue has moved on from chips and ships to the tight labour market.A worker shortage drives down margins unless business raise price in response to higher wages. Until available workers and jobs come into balance there is inflation pressure. That said, a recession always resolved this.


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## AltaRed (Jun 8, 2009)

James, the dilemma that existed prior to Jan 2020 was that while easy credit caused significant asset (of all kinds) inflation and high levels of debt, OECD GDP growth was not strong and inflation was 2% or less. The biggest risk then was deflation. It would not have taken much of a global disruption to result in both a recession and 0% or less inflation. I believe that was one of the reasons for the massive pumping of money into the system during the pandemic, i.e. a real fear of deflation and the death spiral such a situation brings (the Great Depression was exactly that)..

I am the first to say easy credit and pumping all that money into the system in the 10 years since the financial crisis has gotten us into the mess we have today, but I also recognize there was real legitimate central bank fear of a deflationary spiral along the way. There simply was a gross over-reaction and a failure to rein in the largesse soon enough, i.e. the Fall of 2020 rather than Spring of 2021.


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## AlwaysMissingTheBoat (8 mo ago)

AltaRed said:


> There simply was a gross over-reaction and a failure to rein in the largesse soon enough, i.e. the Fall of 2020 rather than Spring of 2021.


Things could have been worse. Trump could have been in control of the Fed.

_WASHINGTON (Reuters) - U.S. President Donald Trump said on Monday he was “not thrilled” with the Federal Reserve under his own appointee, Chairman Jerome Powell, for raising interest rates and said the U.S. central bank should do more to help him to boost the economy._









Exclusive: Trump demands Fed help on economy, complains about interest rate rises


U.S. President Donald Trump said on Monday he was "not thrilled" with the Federal Reserve under his own appointee, Chairman Jerome Powell, for raising interest rates and said the U.S. central bank should do more to help him to boost the economy.




www.reuters.com






_The central bank said borrowing costs will remain at between 2.25%-2.5%.
The Fed made the decision despite Mr Trump tweeting on Tuesday that it should reduce rates by 1% to help the US economy "go up like a rocket"._









US Fed defies Trump and holds interest rates


The central bank has left borrowing costs unchanged despite the president calling for a 1% cut.



www.bbc.com


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## AltaRed (Jun 8, 2009)

Oh yeah, don't we all know that. All Trump really cared about was more asset inflation on his highly indebted holdings. His modus operandi is unabashed 'me...me...me'.


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## james4beach (Nov 15, 2012)

AltaRed said:


> James, the dilemma that existed prior to Jan 2020 was that while easy credit caused significant asset (of all kinds) inflation and high levels of debt, OECD GDP growth was not strong and inflation was 2% or less. The biggest risk then was deflation. It would not have taken much of a global disruption to result in both a recession and 0% or less inflation. I believe that was one of the reasons for the massive pumping of money into the system during the pandemic, i.e. a real fear of deflation and the death spiral such a situation brings (the Great Depression was exactly that)..
> 
> I am the first to say easy credit and pumping all that money into the system in the 10 years since the financial crisis has gotten us into the mess we have today, but I also recognize there was real legitimate central bank fear of a deflationary spiral along the way. There simply was a gross over-reaction and a failure to rein in the largesse soon enough, i.e. the Fall of 2020 rather than Spring of 2021.


I agree with your assessment here. And I was on board with the immediate central bank reaction at the start of the pandemic, it was absolutely the right thing to do. But when it comes to QE, a big part of central bank stimulus, let's keep in mind that the Federal Reserve balance sheet was still expanding in March 2022.

Here's the Federal Reserve balance sheet as of today. They have barely reduced the balance sheet even today. Their balance sheet, representing QE level, was $4 trillion before the pandemic started. It reached a peak of $9 trillion in April of this year (just 7 months ago) and is now at $8.7 trillion.

So their balance sheet went up 125% during the pandemic. Recently it has only shrunk 3%

This was a totally reckless degree of QE and they were still at it as recently as March.


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## londoncalling (Sep 17, 2011)

Using US data, the Nasdaq entered bear territory in April and the S&P in mid June. It is my understanding that the furthest the TSX has slid is 14% from its peak. Perhaps that is why most people I know aren't panicked yet. Looking at the chart below some bears are very short lived 1-3 months. A couple less than a year but the several are about 15-21 months. Most guess (and it is just a guess) that this will continue through the bulk of 2023. I have been buying as money comes available. I am now at the lower threshold of my cash allocation so am hoping (hope is not a strategy) that we are nearing the bottom even if the bear continues. I think it is more likely that the US bear has a ways to go (both in direction and duration). As hewers of wood and drawers of water we are in a better position than most economies. That doesn't mean we will go through this unscathed. Will Canada's bear lag the US? Will we be spared the equity bear and be hit harder in RE pricing? Or is the worst yet to come? Hard to say. I am preparing for the worst as that way I will not be disappointed and may even be surprised if there is a quick recovery.









S&amp;P 500 Bear Markets and Recoveries (dwcdn.net)


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## Covariance (Oct 20, 2020)

My sense is this is now something quite different and not experienced by many investors today. A classic central bank driven tightening cycle like they teach in ECON 101. Inflation gets hot, central bank raises rates to slow the economy and bring supply, demand into balance. It will be over when it’s over, but not the v shaped bounce back that investors experienced from the past couple of crisis driven melt downs.


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## MrBlackhill (Jun 10, 2020)

It feels like this is the everything-crash. Everything that we've seen in previous major crashes are right there all at once.

Inflation crisis
Tech bubble
Debt crisis
Housing bubble
Oil crisis
Bond bubble
Crypto craziness
Pandemic money printing

What else? They are all happening at the same time.

Maybe Michael Burry's "mother of all crashes" is right.


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## londoncalling (Sep 17, 2011)

There are a lot of the same events unfolding that were experienced in the 70s and 80s. Most investors/consumers today weren't active participants in that economy. 69 months is a long wait for a recovery.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> What else? They are all happening at the same time.


And maybe they will ramp QE back up, double the Fed balance sheet to $17 trillion, and pump all assets to the moon.


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## Covariance (Oct 20, 2020)

MrBlackhill said:


> It feels like this is the everything-crash. Everything that we've seen in previous major crashes are right there all at once.
> 
> Inflation crisis
> Tech bubble
> ...


While it doesn’t seem that long ago, I separate the COVID driven crisis from what is occurring now. Through that lens we have a hot economy being squeezed by tigthening rates. People behaving quite rationally in the real economy in response to higher wages (they are spending) and higher inflation (demanding wage increases). In asset markets, risk assets have been repriced down because of higher discount rate. Classic. Things are breaking that are especially risky or especially leveraged. Classic.


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## londoncalling (Sep 17, 2011)

Covariance said:


> While it doesn’t seem that long ago, I separate the COVID driven crisis from what is occurring now. Through that lens we have a hot economy being squeezed by tigthening rates. People behaving quite rationally in the real economy in response to higher wages (they are spending) and higher inflation (demanding wage increases). In asset markets, risk assets have been repriced down because of higher discount rate. Classic. Things are breaking that are especially risky or especially leveraged. Classic.


I hope you are correct and that it is more like the dot.com situation in the 2000s. The overall market was discounted and the companies without out real earnings became extinct. I have no qualms with crypto replicating the dotcom crash. Be reminded that some amazing companies survived the dot com era. The same could happen with blockchain. If you are correct the economy will bounce back after a short recession and GDP will improve. Any quality positions will have been bought at a bargain price. We will need a proper immigration and spending strategy to fix our hurting healthcare and education systems.

I know of a few retirees that are looking at using a portion of their cash wedge for not just living expenses but instead to invest in 2023. They are reducing their vacation time and delaying purchasing new vehicles for the next 2 years. Like many they put a substantial portion of their discretionary money back into their home during the pandemic. They are allocating that money to equities, short term bonds and even looking to buy some property should a major correction take place.


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## AlwaysMissingTheBoat (8 mo ago)

londoncalling said:


> I know of a few retirees that are looking at using a portion of their cash wedge for not just living expenses but instead to invest in 2023. They are reducing their vacation time and delaying purchasing new vehicles for the next 2 years. Like many they put a substantial portion of their discretionary money back into their home during the pandemic. They are allocating that money to equities, short term bonds and even looking to buy some property should a major correction take place.


There's a whole lot of the populace right around the retirement age, hence all the job vacancies. If a significant fraction of them are planning a similar strategy to what you've described above, a fair but of liquidity could flood into the markets next year.


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## AltaRed (Jun 8, 2009)

I would be surprised that would be the case for the recently retired. It takes some time to adjust to different sources of cash flow, usually considerably less than from employment earnings, and sorting out where they want to focus their retirement time. I could see that being more applicable 5-10 years into retirement once the retiree has settled in and seen how their finances are flowing.


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## Covariance (Oct 20, 2020)

londoncalling said:


> I hope you are correct and that it is more like the dot.com situation in the 2000s. The overall market was discounted and the companies without out real earnings became extinct. I have no qualms with crypto replicating the dotcom crash. Be reminded that some amazing companies survived the dot com era. The same could happen with blockchain. If you are correct the economy will bounce back after a short recession and GDP will improve. Any quality positions will have been bought at a bargain price. We will need a proper immigration and spending strategy to fix our hurting healthcare and education systems.


Agreed, so long as real rates are positive, earnings will be crucial to valuation. 

The other observation is a classic tightening cycle is not a rapid on/off affair. This may come as a difficult surprise for those who are used to crisis response type recession/recoveries. Based on historical patterns it takes some time to fully manifest and wash through spending in the real economy. Four to seven quarters after the initial move up in rates before things really get started in terms of slowing of consumption. And then lower, longer depending on how high rates go and how long the tightening cycle continues.


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## james4beach (Nov 15, 2012)

Covariance said:


> The other observation is a classic tightening cycle is not a rapid on/off affair.


It also may not proceed in one straight path. A lot of people right now seem to be assuming there will be clear phases, such as "inflation rising" followed by "inflation cooling".

It may not be so simple. We may first see inflation cool off (though I expect it will stay remain well above 2%), people get complacent, and then we get more waves of inflation rising again.

That could also mean that interest rates remain stable for a while, perhaps even some cuts, but then we could see rate hikes again and ultimately higher interest rates if inflation remains a problem.


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## AlwaysMissingTheBoat (8 mo ago)

Listen, it's becoming obvious that not one of you knows how things are going to play out over the next year or two.

I joined this forum in a quest to find a definitive answer, damn it! Don't leave me hanging!

😝


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## londoncalling (Sep 17, 2011)

The people I was speaking about are in the 5-10 years of retirement and closer to 10. They have been able to maintain the same standard of living throughout and took the same approach in 2020. As mentioned in post #336 the recovery will not be V shaped nor happen as quickly. However, they do think that vacations and vehicles are over priced and investments are fair value. They aren't buying yet but are prepared to do so should the current trend continue.


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## m3s (Apr 3, 2010)

londoncalling said:


> I have no qualms with crypto replicating the dotcom crash. Be reminded that some amazing companies survived the dot com era. The same could happen with blockchain. If you are correct the economy will bounce back after a short recession and GDP will improve. Any quality positions will have been bought at a bargain price. We will need a proper immigration and spending strategy to fix our hurting healthcare and education systems.


Crypto is very similar to dot com bust right now which was always expected.

The weakest miners are failing, the exchanges with the worst balance sheets are failing and the VC non-sense is being flushed out. Anyone who did their due diligence has predicted that all along.

ISO 20022 is the incoming standard for international financial transfers and 5 blockchains are already compliant with about 3 more that will be.


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## TomB16 (Jun 8, 2014)

Covariance said:


> I feel the issue has moved on from chips and ships to the tight labour market.A worker shortage drives down margins unless business raise price in response to higher wages. Until available workers and jobs come into balance there is inflation pressure. That said, a recession always resolved this.


I have a bit of familiarity with two projects that are trying to get wafers lithographed on older nodes and one has been waiting since 2019. Last I heard, both projects were hoping to be taped out in later 2023 but no promices.

This makes it appear there is zero surplus capacity when small projects are starved for access.


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## AlwaysMissingTheBoat (8 mo ago)

England officially in a world of hurt. 


__ https://twitter.com/i/web/status/1595355243897757696


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## AlwaysMissingTheBoat (8 mo ago)

Germany, on the other hand, seeing some reasons for optimism.


__ https://twitter.com/i/web/status/1595349886094004225


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## AlwaysMissingTheBoat (8 mo ago)

Different take on Germany. No wonder this stuff is so hard to predict!


__ https://twitter.com/i/web/status/1595058362743496709


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## londoncalling (Sep 17, 2011)

AlwaysMissingTheBoat said:


> Different take on Germany. No wonder this stuff is so hard to predict!


I like to predict where things are going but rarely am I right. However, the graphs of most indices move up and to the right over time. I am waiting for the tax loss selling and santa rally. It may happen it may not but I will be buying. Also we are entering the 3rd year of the US presidential cycle which historically yields an above average positive return more often than not. It doesn't mean that the bear won't continue but I will buy in 2023 no matter what the market does.


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## fstamand (Mar 24, 2015)

There are a few signs bears went back to sleep. For how long ...


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## AltaRed (Jun 8, 2009)

The next central bank rate increase perhaps? Downward revised 4th quarter earning estimates/actuals? There are any number of triggers.


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## james4beach (Nov 15, 2012)

fstamand said:


> There are a few signs bears went back to sleep. For how long ...


Here's a chart of the S&P 500 with the 200 day moving average. Stocks are at an important point now, right at the 200 day trend line. If stocks can get above this line _and remain above it for a while_, that would suggest the bear market is over.

Alternatively, they may fail to rally above the 200 day average, in which case we'd say the bear market is still happening... and new lows would likely be seen. Probably another 15% downside at least, in that scenario.

Both March and August saw similar tests, and failures, of this trend line. It also happened repeatedly in previous bear markets like 2000-2003.


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## AltaRed (Jun 8, 2009)

My money would be on at least one more trend down, if not two. This GS perspective expresses my sentiments.


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## Covariance (Oct 20, 2020)

james4beach said:


> Here's a chart of the S&P 500 with the 200 day moving average. Stocks are at an important point now, right at the 200 day trend line. If stocks can get above this line _and remain above it for a while_, that would suggest the bear market is over.
> 
> Alternatively, they may fail to rally above the 200 day average, in which case we'd say the bear market is still happening... and new lows would likely be seen. Probably another 15% downside at least, in that scenario.
> 
> ...


Also approaching an important fundamental level for SP500; 18 x Forward EPS is about 4047 (SPX), a touch above 4027 close yesterday.


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## james4beach (Nov 15, 2012)

AltaRed said:


> My money would be on at least one more trend down, if not two. This GS perspective expresses my sentiments.


I agree and expect another leg down. Except, too many of my friends & colleagues seem bearish. With so many people expecting more declines, could it really happen? The market doesn't usually deliver what everyone expects.

I'm still thinking this year feels "too easy" so far. I'm only down 7% year-to-date. Notice as well that VBAL is only down 9% year-to-date.

That's nothing. That would make this a very mild bear market. Maybe the worst is yet to come?


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## TomB16 (Jun 8, 2014)

Covariance said:


> Also approaching an important fundamental level for SP500; 18 x Forward EPS is about 4047 (SPX), a touch above 4027 close yesterday.


All of your insights are extremely helpful. Thank you.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> I'm still thinking this year feels "too easy" so far.


What bear market?  

Last year I was saying we should move towards value. For my kid's RESP I don't buy stocks, only diversified ETF. I went into the one-stop shop VVL.TO, a 100% equity globally diversified ETF, but with the value tilt. With this current little bounce, it's in the *green* YTD, up +2%.

I believe the market will crash hard in 2023. At the moment, the market is only pricing the rate hikes, but the real pain hasn't started yet, when everything will fall apart. The dominoes are all aligned, though.


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## londoncalling (Sep 17, 2011)

I hope we see a bit of a rally here as I let my cash accumulate. I will be fine if this bear is shortlived and fine if it continues. My guess, and it's as good as anyody's, we got a ways to go. The actions of the Fed will likely be the biggest factor on how long this goes on. Those actions will be based on inflation results. The 2022 hikes have just started to impact people/company balance sheets. Even the recent quarterlies for the most part have been ok. Some are feeling the squeeze but the rates are normailzed, the overall market performance (in Canada) has barely declined. Is today the calm before the storm or did we avoid the hurricane?


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> What bear market?


Well that's the thing. Slowdowns are supposed to hurt investors. There hasn't been a wipeout and capitulation.

As you know I'm pretty risk averse and even with all these losses, this still feels like "nothing" to me. It *should* be much more painful and agonizing.

IMO the central banks have not tightened conditions nearly enough yet. Even the leveraged people are trying to get back in, already.


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## Gator13 (Jan 5, 2020)

james4beach said:


> Well that's the thing. Slowdowns are supposed to hurt investors. There hasn't been a wipeout and capitulation.
> 
> As you know I'm pretty risk averse and even with all these losses, this still feels like "nothing" to me. It *should* be much more painful and agonizing.
> 
> IMO the central banks have not tightened conditions nearly enough yet. Even the leveraged people are trying to get back in, already.


I recall you mentioning at one point that your sphincter was tightening up. 😂 I hit a low on October 12th at -12.5% and that was uncomfortable. I was feeling some pain at that point. I have since rebounded to -3.6%. The loss would be less if I included my cash hoard in the results.


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## MrMatt (Dec 21, 2011)

james4beach said:


> Well that's the thing. Slowdowns are supposed to hurt investors.


I'm not sure what you're trying to say.
Sure if things slow down, maybe revenue and profits might fall, but that doesn't have to "hurt"

Also we really don't want to hurt investors, we want them to be healthy and able to invest in more.



> As you know I'm pretty risk averse and even with all these losses, this still feels like "nothing" to me. It *should* be much more painful and agonizing.
> 
> IMO the central banks have not tightened conditions nearly enough yet. Even the leveraged people are trying to get back in, already.


What losses, my portfolio is still up.

I think the various actors are working against each other causing a mess.

I think rates are close to right, but we have to wait for things to adjust. We're undergoing big changes that will take a while to have their impacts fully felt.

For all those massive tech layoffs, many of those people are still pulling in paychecks for a few more weeks or months, I think when Xmas bills come due we're going to see some interesting stuff.

I was really interested in Goeasy and the other payday scammers, but I think there is a bit of risk as people run out of money.


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## Covariance (Oct 20, 2020)

We have not reached the recession yet. Can we move higher with conviction? I'm not prepared to make that bet until I see more signal. That said, a sideways market or Santa Claus rally are quite possible, maybe even probable. At the moment I'm not bullish but not bearish either. I'm picking away at companies I think will do well in the next expansion of the economy, generating income from short term FI, cash yields, HY credit, and doing lots of research. No need to be hasty. This will take a bit of time to get from where we were to where we are going.


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## MrMatt (Dec 21, 2011)

Covariance said:


> We have not reached the recession yet. Can we move higher with conviction? I'm not prepared to make that bet until I see more signal. That said, a sideways market or Santa Claus rally are quite possible, maybe even probable. At the moment I'm not bullish but not bearish either. I'm picking away at companies I think will do well in the next expansion of the economy, generating income from short term FI, cash yields, HY credit, and doing lots of research. No need to be hasty. This will take a bit of time to get from where we were to where we are going.


I'm actually thinking it is looking more probable that the markets will go sideways, and maybe a slight recession as we recalibrate.

I'm still a bit concerned that they're trying to fight inflation with interest rates, when the problem is still shortages and free government money.


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## Covariance (Oct 20, 2020)

Raising rates to slow demand has a lagging effect. This we know. The challenge is no one really knows how long the lag is, nor how high they really need to go.

We also know that politicians spend to get re elected.


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## MrMatt (Dec 21, 2011)

Covariance said:


> Raising rates to slow demand has a lagging effect. This we know. The challenge is no one really knows how long the lag is, nor how high they really need to go.
> 
> We also know that politicians spend to get re elected.


But that's the point, they're attacking demand, while ignoring supply.

For example we still have car shortages, and do we really want to cut the economy to the point where people can't afford to buy a car to get to work?


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## AltaRed (Jun 8, 2009)

Nothing much can be done about increasing supply short term which is the ability or willingness of the supply chain to invest to increase supply, and not just physical plant. One must find workers. It might take 5 years minimum if brownfield or greenfield plants and transportation vehicles must be built. Ports don't expand, nor do ships get built quickly.

For now, consumer discretionary spend must be squeezed and that is done by increasing consumer debt servicing costs. Central bankers are trying and politicians are derailing the effort by handing out free money, mostly indiscriminately rather than means tested. It is FUBAR.


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## MrMatt (Dec 21, 2011)

AltaRed said:


> Nothing much can be done about increasing supply short term which is the ability or willingness of the supply chain to invest to increase supply, and not just physical plant. One must find workers. It might take 5 years minimum if brownfield or greenfield plants and transportation vehicles must be built. Ports don't expand, nor do ships get built quickly.
> 
> For now, consumer discretionary spend must be squeezed and that is done by increasing consumer debt servicing costs. Central bankers are trying and politicians are derailing the effort by handing out free money, mostly indiscriminately rather than means tested. It is FUBAR.


I disagree, it isn't FUBAR, it is SNAFU


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## james4beach (Nov 15, 2012)

Gator13 said:


> I recall you mentioning at one point that your sphincter was tightening up. 😂 I hit a low on October 12th at -12.5% and that was uncomfortable. I was feeling some pain at that point. I have since rebounded to -3.6%. The loss would be less if I included my cash hoard in the results.


Yes I started feeling some pain, but my losses have eased now.



MrMatt said:


> I'm not sure what you're trying to say.
> . . .
> Also we really don't want to hurt investors, we want them to be healthy and able to invest in more.


Two issues.

(1) the central banks have noted, and I think they are right, that the amazing performance of stocks, real estate, and other high-risk stuff has created a wealth effect, and contributes to the inflation problem. These all result in many people feeling wealthier, and therefore spending more, borrowing more, etc. So I think we want to see assets become *disappointing* for a while, to stop that wealth effect from continuing and making inflation worse.

Markets performing great right now is inflationary. Strong markets = easing financial conditions.

(2) one of the hallmarks of a bear market is the pain and suffering it causes investors. Since investors are having an easy time to so far, I'm not convinced that the bear market has really started yet. It makes me anxious. Once we go through a period where investors are crying with pain -- people are capitulating etc -- then at least I'll be more confident that the bear market could be over and we might be entering a new prolonged bull market.

In other words, investor pain always precedes a market bottom.


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## londoncalling (Sep 17, 2011)

Or maybe the complacency is due to the sharp V like covid bear we just went through. This hasn't felt like 2008 at all. Nor should it. Most folks, and many here as well, are expecting a bail out should things get bad. I think in the current environment that would probably happen if things actually do get ugly. Many are already expecting 

Friends - Ross Pivot - Bing video


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## james4beach (Nov 15, 2012)

londoncalling said:


> Or maybe the complacency is due to the sharp V like covid bear we just went through. This hasn't felt like 2008 at all. Nor should it. Most folks, and many here as well, are expecting a bail out should things get bad.


Good point. This isn't like 2008.


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## AlwaysMissingTheBoat (8 mo ago)

james4beach said:


> Good point. This isn't like 2008.


I think there's some potential for Europe to experience something closer to 2008. The North American markets should weather the storm better and China will provide a boost when Covid subsides, but that could be late spring. It's a huge mess over there now.


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## Thal81 (Sep 5, 2017)

I think we've pretty much bottomed as far as the markets go. The economy is not done going through the pains caused by rising rates, but people still need to buy stuff and companies will profit. Big tech is not coming back anytime soon though. Europe will have it harder than us, but hardship produces innovation. Today I'm pretty optimistic for 2023. Tomorrow I might change my tune.


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## sags (May 15, 2010)

Many investors aren't feeling sufficient pay yet, but many other people are.

I know a young lady with a full time job in the field of mental health and she can't afford to pay her rent, car payments, insurance, gas, phone bill, and still buy food from her wages. Her rent alone takes 60% of her monthly income.

She needs the car to commute to work and missed several monthly insurance premium payments, so they cancelled her policy and she is driving around with no insurance.

She didn't tell us about it or ask for help, but I sent her some money anyways and told her to talk to her insurance agent about paying insurance upfront for the year and we will pay it.

I wonder how many people are cutting out things like car insurance, proper maintenance, dental appointments, medicines, food.... just to survive.

People may not approve of government support spending.......but I see no other way out of this mess for some people.

No government can stand idly by and say......sorry, it is your problem so deal with it.


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## londoncalling (Sep 17, 2011)

Canadian bank earnings this week. Should be a good barometer of how the Canadian economy is doing and the big bank's thoughts on inflation, interest rates, and housing. Hoping to hear share buybacks and debt repayment announced.


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## AlwaysMissingTheBoat (8 mo ago)

londoncalling said:


> Canadian bank earnings this week. Should be a good barometer of how the Canadian economy is doing and the big bank's thoughts on inflation, interest rates, and housing. Hoping to hear share buybacks and debt repayment announced.


I'm actually tempted to sell half of my shares in TD bank on Monday morning. Up 13% since July and it's been a good move upward over the past week or two. I think a pull back is highly likely, so I could buy back those shares perhaps in weeks or months for less.


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## AltaRed (Jun 8, 2009)

I foresee a pretty big provision for loan losses from all of the banks.


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## londoncalling (Sep 17, 2011)

Loan loss provision increase seem very probable. I haven't checked to see how those provisions have changed from 2020. Wonder how many people will refinance with a longer term over the next few years. many consumers seem to focus on what the payment amount is as opposed to what did it cost.


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## Faramir (11 mo ago)

sags said:


> Many investors aren't feeling sufficient pay yet, but many other people are.
> 
> I know a young lady with a full time job in the field of mental health and she can't afford to pay her rent, car payments, insurance, gas, phone bill, and still buy food from her wages. Her rent alone takes 60% of her monthly income.
> 
> ...


Oh my family feels the pain. A family of 6 and we can barely keep up with grocery prices.


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## sags (May 15, 2010)

Some families need financai support.

Other families don't need any financial support, but can't afford to support others who do need support.

Still other families don't need any financial support, have more money than they will ever need, and should pay taxes at the stipulated rate....not the one their high priced accountants create for them.


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## KaeJS (Sep 28, 2010)

sags said:


> Some families need financai support.
> 
> Other families don't need any financial support, but can't afford to support others who do need support.
> 
> Still other families don't need any financial support, have more money than they will ever need, and should pay taxes at the stipulated rate....not the one their high priced accountants create for them.


And still... Families all over Africa can't afford to eat, but you're not selling your TV to send them money, are you?

Some people have more. Some people have less. It is what it is. Poverty doesn't exist in a bubble.


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## Faramir (11 mo ago)

sags said:


> Some families need financai support.
> 
> Other families don't need any financial support, but can't afford to support others who do need support.
> 
> Still other families don't need any financial support, have more money than they will ever need, and should pay taxes at the stipulated rate....not the one their high priced accountants create for them.


They do. The top 10% pay 50% of the taxes.


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## MarcoE (May 3, 2018)

sags said:


> Still other families don't need any financial support, have more money than they will ever need, and should pay taxes at the stipulated rate....not the one their high priced accountants create for them.


I donate money every month to food banks. Enough for quite a few meals for poor, hungry people. If I had to pay that money as tax, do you know what would happen? Multi-millionaire politicians would spend it on 5-star hotels, expensive bottles of wine, fine dining, and private jets. I'd much rather give the money to the food bank, where poor people can actually benefit from it, than simply enrich already-wealthy politicians.


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## MrBlackhill (Jun 10, 2020)

Faramir said:


> The top 10% pay 50% of the taxes.


That's playing with stats. There's so many ways we can play we stats.

Say I make $450,000 and pay 20% taxes.
Say 9 other people each make $50,000 and also pay 20% taxes.

In this specific scenario we all pay 20% taxes so I guess it's fair?

And then I come and say "Wait a minute, I'm 1 out 10 paying 50% of all the taxes by myself, whereas the rest of you 90% pay the other half, that's not fair!"

Then he argued "I'm 1 out of 10, so I should pay 10% of the taxes". Therefore, he paid $18,000 taxes and the other 9 each paid $18,000. So the top 10% paid 10% of the taxes and the bottom 90% paid 90% of the taxes. Basically, the top paid 4% of his income in taxes while each of the bottom 90% paid 36% of their income to taxes.

This is why it's fair to have higher taxes on higher incomes and that the sentence "the top 10% already pay 50% of the taxes" is absolutely meaningless without the context of the distribution of incomes.


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## MrBlackhill (Jun 10, 2020)

MarcoE said:


> I donate money every month to food banks. Enough for quite a few meals for poor, hungry people. If I had to pay that money as tax, do you know what would happen? Multi-millionaire politicians would spend it on 5-star hotels, expensive bottles of wine, fine dining, and private jets. I'd much rather give the money to the food bank, where poor people can actually benefit from it, than simply enrich already-wealthy politicians.


On the other end, if there were no taxes, do you trust people to be generous and donate?

It turns out that people living in states with fewer taxes aren't donating more than people living in states with higher taxes. They simply keep more for themselves, out of greed. Or out of need to pay for the private sector costs and insurance, etc. because of public sector cuts due to lower revenue from lower taxes.


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## Faramir (11 mo ago)

MrBlackhill said:


> That's playing with stats. There's so many ways we can play we stats.
> 
> Say I make $450,000 and pay 20% taxes.
> Say 9 other people each make $50,000 and also pay 20% taxes.
> ...


It's a progressive tax system. The higher the income the higher the tax rate. That is what exists in Canada. So I think its fair to say compare wage earners to wage earners. A specialist doctor making $300,000 is going to pay much more in taxes nominally and by percentage than a person earning $50,000 with 4 kids. I was not at all making a comment on fairness. Just saying we don't need more progressivism as the tax system already is progressive.


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## Faramir (11 mo ago)

MrBlackhill said:


> On the other end, if there were no taxes, do you trust people to be generous and donate?
> 
> It turns out that people living in states with fewer taxes aren't donating more than people living in states with higher taxes. They simply keep more for themselves, out of greed. Or out of need to pay for the private sector costs and insurance, etc. because of public sector cuts due to lower revenue from lower taxes.


That's greed? Is it greedy to buy groceries for my family? The fact let's say I live in Texas and some other person lives in high tax California is not my problem. In fact the high tax state should emulate Texas. I swear but the left says everything is greedy unless its their own greed. Seriously if you are TRULY against "greed" sell all your belongings and donate to the poor.


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## MrBlackhill (Jun 10, 2020)

Faramir said:


> Just saying we don't need more progressivism as the tax system already is progressive.


Why not more? If the progressive tax system makes sense when comparing incomes of $30,000 and $300,000, why stop there? Does it make sense to have same tax percentage for income above $300,000 than income above $3,000,000?



Faramir said:


> Seriously if you are TRULY against "greed" sell all your belongings and donate to the poor.


How selling all my belongings would make a change? Voting for governments that want more efficient wealth distribution would make a change. I'm top 5% income and I'm happy to pay my taxes so that my money gets redistributed according to democracy instead of being based only on my own personal beliefs.


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## Gator13 (Jan 5, 2020)

There are some straightforward things the government could do. Claw back OAS more aggressively, suspend the RESP program for top 10 percent family incomes, tax capital gains on rental properties and prooerty flips more aggressively, far more aggressive consumption taxes on luxury items, give money to teachers, nurses and doctors instead of administrators, etc.

But prior to any of this or additional taxes, cut wasteful government spending, cut government spending on wining and dining themselves, shrink the civil servant ranks in a big, big way, change civil servant golden pensions to something more realistic, reward successful innovation and job creation by companies, etc

We need a government instead of politicians.

However, better chance of spotting twin unicorns in my backyard than any of this happening.


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## MarcoE (May 3, 2018)

MrBlackhill said:


> On the other end, if there were no taxes, do you trust people to be generous and donate?


Do you trust multi-millionaire, corrupt politicians who spend millions on lavish vacations and luxuries for themselves? If you want your money to help poor people, give the money to poor people. Not to multi-millionaires. If I have $500 and want to feed people, I'm not giving that money to a corrupt and greedy politician. I'm going with it to a food bank.


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## MarcoE (May 3, 2018)

MrBlackhill said:


> It turns out that people living in states with fewer taxes aren't donating more than people living in states with higher taxes. They simply keep more for themselves, out of greed.


Very strange that you think people keeping their own money, which they earned themselves, is "greed." But when politicians take that money by force, and spend it on their own careers, that's "generosity." If you think keeping money to yourself is "greed" -- do YOU pay more than the bare minimum in taxes? Do YOU not ask your accountant to make sure you pay the least amount possible? Are you greedy? You know you CAN be less greedy and give the government more money. They'll take it if you offer.


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## MrBlackhill (Jun 10, 2020)

MarcoE said:


> Do you trust multi-millionaire, corrupt politicians who spend millions on lavish vacations and luxuries for themselves? If you want your money to help poor people, give the money to poor people. Not to multi-millionaires. If I have $500 and want to feed people, I'm not giving that money to a corrupt and greedy politician. I'm going with it to a food bank.


Multimillionaire politicians became multimillionaires before becoming politicians. You don't go into politics to become a multimillionaire, if you want to become a multimillionaire you become a business owner or a CxO. And those people waste much more money in the private sector than the public sector ever will, because it's "their" money (given by their clients) and because it's not transparent. At the government, you can have access to the salaries of every role and most government expenses.

Our PM gets a total compensation somewhere around $500,000 per year, meanwhile all of the top CEOs in Canada earn about $10,000,000 a year. Let's not even talk about the US here. Hint, all those CEOs are wasting even more money.

Even small businesses waste money, I worked for a small business of less than 40 employees and we went for a dinner with potential clients, we were a total of 7 people (including the potential clients) and the bill was over $1,000. At my job the Christmas party costs $50,000 for about 400 people present.

Also, have you ever seen a Silicon Valley IT big corp? There's stuff you won't ever see at the government: paid daily snacks, paid daily lunch, paid weekly alcohol, free arcade games in the office, relaxation rooms with huge aquariums, etc. Now the executives of those big corps move by private jet, nice hotel rooms, expensive dinners, etc.

Don't get me wrong, the government is highly inefficient, archaic and wasteful... As much as most very old business with hundreds of thousands of employees. As much as any big corp with too much money. I've also worked for some of the big banks and big insurance companies in Canada, you'd be scared how inefficient and wasteful they are, because they have so much money.

Also, when you donate money to food banks or any other charity, do you know how much of that money is wasted towards salaries and administrative costs and so on?



MarcoE said:


> Very strange that you think people keeping their own money, which they earned themselves, is "greed." But when politicians take that money by force, and spend it on their own careers, that's "generosity." If you think keeping money to yourself is "greed" -- do YOU pay more than the bare minimum in taxes? Do YOU not ask your accountant to make sure you pay the least amount possible? Are you greedy? You know you CAN be less greedy and give the government more money. They'll take it if you offer.


I do as according to democracy, so I pay my taxes who gets distributed (inefficiently, but at least it's redistributed according to democracy) instead of getting to choose whether or not I keep my extra money out of greed and whether I donate my extra money to charities fitting my own ego. Look in the US, the very wealthy can avoid taxes and then buy billion-dollar yacht and also maybe donate millions to a guns rights charity, because I guess that being able to own a gun is more important than feeding children?

The fewer the taxes, the more the power is driven by wealth, where the rich eats the poor. The higher the taxes, the more the power is driven by democracy, where everybody have an equal voice through their vote.


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## Gator13 (Jan 5, 2020)

MrBlackhill said:


> Even small businesses waste money, I worked for a small business of less than 40 employees and we went for a dinner with potential clients, we were a total of 7 people (including the potential clients) and the bill was over $1,000. At my job the Christmas party costs $50,000 for about 400 people present.
> 
> Also, have you ever seen a Silicon Valley IT big corp? There's stuff you won't ever see at the government: paid daily snacks, paid daily lunch, paid weekly alcohol, free arcade games in the office, relaxation rooms with huge aquariums, etc. Now the executives of those big corps move by private jet, nice hotel rooms, expensive dinners, etc.
> 
> ...


Private companies can spend their money any way they want. It is their money. Just like you can spend your money any way you want without question. As for public companies, I have a choice whether or not I want to be a shareholder.

The same can't be said for the government. We do not have a choice whether or not we pay taxes. You are correct. The government is highly inefficient, archaic and wasteful. Waaaaaay too many public servants feeding at the trough. All on the backs of tax payers.

The charities I donate to provide reports on where the money goes, charity vs administrative. Those reports help me decide where my donations go.


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## MrBlackhill (Jun 10, 2020)

Gator13 said:


> It is their money.


They can manipulate the price as much as they want with the oligopoly. Please recall the bread price-fixing scheme in Canada. And that's only bread! That's a "tax" on the customers.

Android OS has 72% market share and iOS has 27% market share. They can do whatever they want with their price to squeeze more out of their customers while wasting "their money", or more realistically wasting the extra money they get from overpricing their customers, the money given by their customers.

The inefficiencies and the wasted money of the big 6 banks in Canada are priced back in fees to their customers. They don't care about being inefficient, it's the norm and anyways all Canadians use one of those banks.

All the waste and inefficiencies are priced in all those oligopolies that you are somehow forced to use because everybody has a smartphone, everybody deals with a bank, everybody has to buy food, etc. That's a form of "tax" from the economic system.

And when there's low taxes, instead of being taxed by the government, you get taxed by private companies through insurance. Sure, you can choose to skip insurance or be cheap on your insurance choice, and play the Russian roulette with your future because you won't have any support if you suddenly have to pay a $100,000 medical bill in private healthcare.



Gator13 said:


> We do not have a choice whether or not we pay taxes. You are correct.


Yes, you have choice, the voice of the population is the choice through democracy. If the population wanted lower taxes, they'd vote for it, it's a democracy. Don't get me wrong, democracy has its flaws, but power through wealth is even worse.

Anyways, we're being off-topic here, this is not the politics thread.


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## Gator13 (Jan 5, 2020)

MrBlackhill said:


> They can manipulate the price as much as they want with the oligopoly. Please recall the bread price-fixing scheme in Canada. And that's only bread! That's a "tax" on the customers.
> 
> Android OS has 72% market share and iOS has 27% market share. They can do whatever they want with their price to squeeze more out of their customers while wasting "their money", or more realistically wasting the extra money they get from overpricing their customers, the money given by their customers.
> 
> ...


I am not sure why you are talking about oligopolies, smart phones and private healthcare. Maybe you're a civil servant?? That's a lot of smoke and mirrors in response to my original comment.

_But prior to any of this or additional taxes, cut wasteful government spending, cut government spending on wining and dining themselves, shrink the civil servant ranks in a big, big way, change civil servant golden pensions to something more realistic, reward successful innovation and job creation by companies, etc

We need a government instead of politicians.

However, better chance of spotting twin unicorns in my backyard than any of this happening. _


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## MarcoE (May 3, 2018)

MrBlackhill said:


> Multimillionaire politicians became multimillionaires before becoming politicians. You don't go into politics to become a multimillionaire, if you want to become a multimillionaire you become a business owner or a CxO. And those people waste much more money in the private sector than the public sector ever will, because it's "their" money (given by their clients) and because it's not transparent. At the government, you can have access to the salaries of every role and most government expenses.


How private businesses spend their money is completely irrelevant to this discussion.

It's also completely irrelevant whether politicians became multi-millionaires before or after being elected.

In Canada (and other countries), it's become quite normal for politicians to steal millions of tax dollars. They stay in $6,000-a-night hotel rooms. They take quarter-million-dollar vacations for themselves and their families. They run 6-figure tabs on booze and fine dining. Even worse, they send money to shady war criminals abroad. Did you know that Canada sends millions of dollars to Palestinian terrorist groups? How about the millions we send to Ukraine? We're told it's for "humanitarian purposes" but the money ends up with jihadists and Azov Battalion supremacists, and funds killing and death.

Yes, there are some charities that are shady too. So? I'm not forcing anyone to fund them. If somebody doesn't want to fund them, they don't get tossed into jail. But taxes force you to fund even war crimes.

We've tried things "your way" for the past few years under the Trudeau administration. What we got is more poverty. More hunger. Food banks are more strained now than they've been in years. Hungry Canadians need help. The last thing they need is rich people (like you) giving money to other rich people (like our politicians). What they need is people showing up with boxes of food or money they can buy food with. That's how you help people. Rich people giving other rich people money isn't helping anyone, least of all the poor.



MrBlackhill said:


> I do as according to democracy, so I pay my taxes who gets distributed (inefficiently, but at least it's redistributed according to democracy) instead of getting to choose whether or not I keep my extra money out of greed and whether I donate my extra money to charities fitting my own ego. Look in the US, the very wealthy can avoid taxes and then buy billion-dollar yacht and also maybe donate millions to a guns rights charity, because I guess that being able to own a gun is more important than feeding children?


"I do according to democracy" is such a cop out. You can pay more taxes right now. But you're paying the bare minimum out of greed. You just want to force other people to pay more taxes. To quote Sowell: “I have never understood why it is 'greed' to want to keep the money you have earned, but not greed to want to take somebody else's money.”

As for people "maybe" donating millions to "guns rights charities" -- do you have any idea how much money the US government spends on weapons? It's much more than millions. Think trillions. The US military industry makes the NRA look like a lemonade stand. If your hypothetical yacht-owner paid more taxes, he'd be buying FAR more guns that way than by donating to "gun charities."



MrBlackhill said:


> On the other end, if there were no taxes, do you trust people to be generous and donate?


Strawman argument. Show me where somebody here said there should be NO taxes.


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## MrBlackhill (Jun 10, 2020)

Gator13 said:


> Maybe you're a civil servant??


No I'm not, I prefer my job in a private company where I can work 10-20h a week from home, charging the clients full-time work and earn an easy 6-figure income.

I would have to be in an executive position working 70h a week as a civil servant to make the income I'm making in the private sector where all the big corps are fooling around with their big bucks overcharging each other and they don't care because they'll simply pass the bill to they customers. A big black box of complexity to the customers who are clueless and helpless.

Even when I was working for a small (tiny) business and being paid $80,000, my time was charged $275/h when I was going onsite to help out our big corp clients. Sending two guys for one week? Sure, that'll be $20k, sign here, thanks.



MarcoE said:


> We've tried things "your way" for the past few years under the Trudeau administration. What we got is more poverty.


Right?

Poverty rate reduction by province, 2015 and 2019









Number and percentage of persons under Canada’s Official Poverty Line














Understanding Systems: The 2021 report of the National Advisory Council on Poverty - Canada.ca


Annual report on poverty reduction from the National Advisory Council on Poverty. Report presented to the Minister of Families, Children and Social Development.




www.canada.ca


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## MarcoE (May 3, 2018)

Here in Ontario, food bank visits have been increasing for 6 years in a row. They've increased by almost 50%. There's been a 64% increase in first time visitors to food banks.

Source: Feed Ontario, Hunger Report 2022 (Ontario Food Banks for Ending Hunger & Poverty | Feed Ontario)

(Meanwhile, the data you quoted comes from the Canadian government. Hardly an unbiased source...)

The Ford government shares some of this blame. So does the Federal government. Giving more and more power and money to corrupt politicians = more waste, more hunger, more food bank visits.


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## Gator13 (Jan 5, 2020)

MrBlackhill said:


> How selling all my belongings would make a change? Voting for governments that want more efficient wealth distribution would make a change. I'm top 5% income......


Ahhhh, so you're in the income group you're complaining about. I suspect that even though you complain, you still take advantage of the RESP, RRSP, etc???


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## sags (May 15, 2010)

We don't need higher tax rates. We need to collect the taxes people would be paying except for all the tax breaks people with money have at their disposal.

There were the Panama Papers and other research on offshoring revealed...........big deal on the news for a couple days and then it just faded away.

Look at the Bahamas claiming they have tight regulation, while FTX burned to the ground and they never even audited it once.

Rich people have never had it so good.


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## MrBlackhill (Jun 10, 2020)

MarcoE said:


> Source: Feed Ontario, Hunger Report 2022 (Ontario Food Banks for Ending Hunger & Poverty | Feed Ontario)
> 
> (Meanwhile, the data you quoted comes from the Canadian government. Hardly an unbiased source...)


Look at this article from Food Secure Canada, it tells a lot about the conservatives who were the only one not answering. I wonder who the Food Banks vote for...






Federal Elections: 4 Parties are in Favour of a National Food Policy


Food Secure Canada distributed a questionnaire to the five main political parties in September on the issues in our Eat Think Vote campaign. The Liberals, NDP, Bloc and Green Party responded to our questionnaire, the Conservatives did not. Some additional information was extracted from their...




foodsecurecanada.org





Feed Ontario made a platform monitor for the elections in 2022 where they show their ideas and what the parties provided. Click the button "Platform Monitor" to see their Google Sheet. I wonder for which party they voted for...









Election 2022 - Feed Ontario


It’s time to reduce the need for food banks The upcoming Ontario election is an opportunity for all parties to commit to policies that will turn the tide on rising food bank use in our province. When you cast your ballot during the Ontario 2022 elections, keep poverty reduction in mind. 3 big...




feedontario.ca


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## MrBlackhill (Jun 10, 2020)

Gator13 said:


> I suspect that even though you complain, you still take advantage of the RESP, RRSP, etc???


Well then you should vote left for the NDP for instance.

See they drew the line for their dental care idea:

_To access the money, families with a *household income of less than $90,000* need to attest that their child *does not have access to private dental coverage*, they will have out-of-pocket dental expenses they plan to use the money for, and they will be able to show receipts._

Maybe if you voted more for the left, they would set limits to the use of RESP, RRSP, TFSA. But since democracy decided that those tools were available to everybody, then obviously I'll use them.

Look at what the centre-*right* Premier of Quebec did... Last spring he sent $500 to every taxpayer making less than $100k *net* (based on 2021 income tax). And now he'll send another $400 to those making between $50k *net* and $100k *net *(and $600 to those making less than $50k *net*). Basically, a couple with no kids making a total of $200k net income will have recieved $1,800 this year, while a single mom with 3 kids making $50k net income will have recieved $900 this year. That's what happens when people vote for those in favour of the rich, with vote-buying strategies and marketing to get the popular vote.


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## MarcoE (May 3, 2018)

MrBlackhill said:


> I wonder for which party they voted for...


What's your point? Is your point "somebody who works for a food bank votes liberal, therefore a liberal administration reduces poverty?" Do you really not see how that's flawed logic? Maybe most people who volunteer at homeless shelters vote NDP; I have no idea. If they did, does that mean NDP reduces homelessness more than other parties? Of course not. I'd much rather look at actual number of people who are using food banks (or homeless shelters). And those numbers are rising. 

Our short term goal is to feed the hungry. Our long term goal is to reduce dependence on food banks and other charities. If you think higher taxes can accomplish this, why are you paying the bare minimum? Why are you using every trick in the book to reduce your tax burden? Don't say "well, because I go by the democracy." That's a cop out. You have a choice to pay more taxes and be less greedy. If you think taxes are too low, why aren't you paying more? It takes 30 seconds to go online and send a bonus tax payment to the government.


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## MarcoE (May 3, 2018)

MrBlackhill said:


> Look at what the centre-*right* Premier of Quebec did... Last spring he sent $500 to every taxpayer making less than $100k *net* (based on 2021 income tax). And now he'll send another $400 to those making between $50k *net* and $100k *net *(and $600 to those making less than $50k *net*). Basically, a couple with no kids making a total of $200k net income will have recieved $1,800 this year, while a single mom with 3 kids making $50k net income will have recieved $900 this year. That's what happens when people vote for those in favour of the rich, with vote-buying strategies and marketing to get the popular vote.


Because politicians are corrupt. Right-wing politicians are corrupt too. They mismanage and waste money. Liberal politicians do the same -- yes, even the Liberals do everything in their power to protect their rich friends. Once our politicians show they can manage money properly, and not waste millions on luxuries for themselves and their friends (and millions more on wars abroad), I'll be happy to pay more taxes. But pigs will sooner fly.


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## MrMatt (Dec 21, 2011)

MarcoE said:


> Our short term goal is to feed the hungry. Our long term goal is to reduce dependence on food banks and other charities. If you think higher taxes can accomplish this, why are you paying the bare minimum?


I think lower taxes will help with this, which is why I support lower taxes.


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## MrBlackhill (Jun 10, 2020)

MarcoE said:


> Do you really not see how that's flawed logic? Maybe most people who volunteer at homeless shelters vote NDP; I have no idea. If they did, does that mean NDP reduces homelessness more than other parties? Of course not. I'd much rather look at actual number of people who are using food banks (or homeless shelters). And those numbers are rising.


It means it fit their values. When we had elections in Quebec recently, I went to a few local debates and it was pretty obvious that every director of organizations helping the poor were leaning left, all the people helping the poor, feeding the poor, housing the poor, mental health, etc. Those people have to beg money from the government because... guess what... where's all those donations to help them out? When I went to do volunteering at a food bank, I haven't seen anybody making 6-figure out there, I also saw some students who are forced to do some volunteering as part of their university program (business management programs) and wondering why they have to do some volunteering, bored as hell, waiting for the big bucks once they are fresh out of school. When I do some volunteering to help out the low-income elders getting their groceries, the director of that organization told me it's the first time they had a volunteer my age (plus with a wife and kid!), it's usually only lonely retirees who do some volunteering.



MarcoE said:


> why are you paying the bare minimum? Why are you using every trick in the book to reduce your tax burden?


Bare minimum? I pay what's rightfully asked me to pay, I fill my taxes as required. Where it says "fill in your revenues" I fill in my revenues, where it says "fill in your expenses" I fill in my expenses, that's it.

Funny thing though is that the people on the right like saying "that's my money, don't touch it", but then when someone with high income fills in his taxes rightfully, they say "why are you paying the bare minimum". Where does that "bare minimum" comes from? I pay the taxes that I have to pay. I'm not the rich multimillionnaire trying to find tax heavens. I don't use any special trick and my money stays in Canada.

Also, the right likes the fact that our economic capitalist systems allows a nobody to become rich... I'm not rich, I'm not even millionaire, though I said I'm top 5% income. And guess what, I was raised on a farm in a village of 1000 people, I started working at 12, maybe even earlier, during the summers I was working between 80 and 100 hours a week at the family farm instead of playing out with the other kids. The mornings I was working 2h before going to school then another 2h when I came back from school. The weekends I was working somewhere around 25h. Then I went to the university, made my way through my career and I'm now in my mid-30s making top 5% income working only a few hours during the weekdays. This kind of story should appeal to the right who usually call this a "success story of capitalism". You know, the kind of story people liked when PP won the CPC leadership and had his speech about him coming from "modest family" and blah blah. I wished I came from a "modest" family of two *public*-school teachers (public school, the irony) from Saskatchewan each of them making more than my family's household income and my parents don't even have high-school education.


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## MrBlackhill (Jun 10, 2020)

MarcoE said:


> Because politicians are corrupt. Right-wing politicians are corrupt too. They mismanage and waste money. Liberal politicians do the same -- yes, even the Liberals do everything in their power to protect their rich friends. Once our politicians show they can manage money properly, and not waste millions on luxuries for themselves and their friends (and millions more on wars abroad), I'll be happy to pay more taxes. But pigs will sooner fly.


We're f*cked. All politicians are corrupt. All wealthy business owners are also corrupt. And the working class... well... they need to keep their money to save their *ss. Who's left to help the poor? The middle class? They're being squeezed. The high-income class? They are keeping their money to FIRE.


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## MrMatt (Dec 21, 2011)

MrBlackhill said:


> We're f*cked. All politicians are corrupt. All wealthy business owners are also corrupt. And the working class... well... they need to keep their money to save their *ss. Who's left to help the poor? The middle class? They're being squeezed. The high-income class? They are keeping their money to FIRE.


I accept your premise.
In that case what we should do is give as little power as possible to the government, and have it only perform the most basic of functions required for society to function.
Then let the rest of us make voluntary associations that are mutually beneficial.

Congrats, you're now a Classical Liberal, or I guess to some you're a "right wing extremist"


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## Gator13 (Jan 5, 2020)

MrBlackhill said:


> Well then you should vote left for the NDP for instance.
> 
> See they drew the line for their dental care idea:
> 
> ...


I should vote left? You are the one complaining about that the high income earners, of which you are one by your own admission. I simply asked if you take advantage of RESP's and RRSP's. You didn't answer the question.

This is what I want:

_But prior to any of this or additional taxes, cut wasteful government spending, cut government spending on wining and dining themselves, shrink the civil servant ranks in a big, big way, change civil servant golden pensions to something more realistic, reward successful innovation and job creation by companies, etc

We need a government instead of politicians.

However, better chance of spotting twin unicorns in my backyard than any of this happening._


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## MrBlackhill (Jun 10, 2020)

Gator13 said:


> I simply asked if you take advantage of RESP's and RRSP's. You didn't answer the question.


Here:


Gator13 said:


> MrBlackhill said:
> 
> 
> > Maybe if you voted more for the left, they would set limits to the use of RESP, RRSP, TFSA. *But since democracy decided that those tools were available to everybody, then obviously I'll use them.*


Now:



Gator13 said:


> But prior to any of this or additional taxes, cut wasteful government spending, cut government spending on wining and dining themselves, shrink the civil servant ranks in a big, big way, change civil servant golden pensions to something more realistic, reward successful innovation and job creation by companies, etc
> 
> We need a government instead of politicians.
> 
> However, better chance of spotting twin unicorns in my backyard than any of this happening.


I don't disagree with that, we should reduce waste. At all levels. Politics, government, wealthy people, consumerism, environmental, transportation, work, food, housing, etc.


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## MrMatt (Dec 21, 2011)

MrBlackhill said:


> Look at what the centre-*right* Premier of Quebec did...


I don't care about your assigned label of left/right.
Massive wealth redistribution is wrong, no matter if you consider them left or right.

I want small government that interferes with my life to the minimum extent possible.


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## MarcoE (May 3, 2018)

MrBlackhill said:


> It means it fit their values. When we had elections in Quebec recently, I went to a few local debates and it was pretty obvious that every director of organizations helping the poor were leaning left, all the people helping the poor, feeding the poor, housing the poor, mental health, etc.


I can give you just as many examples of conservatives and religious folk helping, volunteering, and giving to charity. But typical liberals like to present themselves as the "moral" side; it's self-aggrandizing and boring. Meanwhile, your leaders -- like Trudeau and his cronies -- represent the exact opposite of these values you celebrate. They are extraordinarily privileged, insanely rich, out of touch elites, who spend their careers kissing up to other rich people. It's no wonder so many other elites vote for them.

And please don't seriously waste my time talking about liberal "values" when the Liberal party sends millions of dollars to Hamas and the Azov Battalion.



MrBlackhill said:


> Bare minimum? I pay what's rightfully asked me to pay, I fill my taxes as required. Where it says "fill in your revenues" I fill in my revenues, where it says "fill in your expenses" I fill in my expenses, that's it.


You say taxes should be higher. You can pay higher taxes. You choose not to. Nobody is telling you "don't pay more." Every Canadian has the option to pay more than what their tax return asks them to. The government would love it if you paid more.


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## Gator13 (Jan 5, 2020)

MrBlackhill said:


> Look at what the centre-*right* Premier of Quebec did... Last spring he sent $500 to every taxpayer making less than $100k *net* (based on 2021 income tax).





MrBlackhill said:


> But since democracy decided that those tools were available to everybody, then obviously I'll use them.


If you're all about what democracy decides, why are you criticizing the right of handing out $500, or anything for that matter? Comes across as okay when it's convenient for you. Cheers


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## MrBlackhill (Jun 10, 2020)

MarcoE said:


> Meanwhile, your leaders -- like Trudeau and his cronies -- represent the exact opposite of these values you celebrate. They are extraordinarily privileged, insanely rich, out of touch elites, who spend their careers kissing up to other rich people. It's no wonder so many other elites vote for them.


Who said I voted Trudeau? I may vote more to the left than you imagine.

I recall in the last provincial elections in Quebec we were told the net worth of each of the 5 main party leaders in Quebec:

Current centre-right party leader (CAQ), 65 years old: $10M
Centre party Quebec Liberals leader, 48 years old : $12M
Right party Conservatives of Quebec leader, 53 years old: $3M
Centre-left party Parti Québécois leader, 45 years old: $400k
Left party QS spokespersons, 59 years old and 32 years old: $400k and $100k
Hint, for those provincial elections, I voted for a party who was *not* extraordinarily privileged, insanely rich, out of touch elites.



MarcoE said:


> You say taxes should be higher. You can pay higher taxes. You choose not to. Nobody is telling you "don't pay more." Every Canadian has the option to pay more than what their tax return asks them to. The government would love it if you paid more.


Taxes should be higher to the rich as a whole. Sure I can pay more taxes but what's the point of me doing this alone? Also, I currently have high income, but I'm not a millionaire either, so first thing I'll secure my future and my kid's future and my grandkid's future because I really don't know what the future holds, then maybe I'll send money. Meanwhile, instead I give my time through volunteering and I give away the things I don't need anymore (there's only few of them though because I'm a minimalist). And I vote for governments who want to improve the wealth redistribution, who want to make free quality education for everyone, who want to make free quality healthcare for everyone, who want to provide more money to social programs, etc.

But we live in a democracy, so I don't get to choose alone, so if other people believe my ideas and values aren't good, then I'll follow what they voted for. If the government they vote for reduces the taxes, then I'll pay fewer taxes and keep more money to me, as they wish. If the government they vote for increases the taxes, then I'll pay more taxes and keep less money to me, as they wish. If they vote for a government that adds benefits to the poor only, then I'll be happy that I make an income high enough so I don't qualify and don't need those benefits, while being happy that those who qualify gets those benefits. And so on. And maybe someday in the future if there's no democracy anymore then I'll be happy to use my compounded wealth as a means of power and security. Meanwhile, I give only what I have the most precious, much more than money: I give my time through volunteering.


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## MrBlackhill (Jun 10, 2020)

Gator13 said:


> If you're all about what democracy decides, why are you criticizing the right of handing out $500, or anything for that matter? Comes across as okay when it's convenient for you. Cheers


I believe it's stupid, but obviously I'll take it. People voted for a government with those values. I'll do as they wish and take that money "to help me". Those $1,800 invested will be worth maybe something like $30k inflation-adjusted once me and my wife are 85, so maybe it'll pay for some healthcare if it's all become privatized. And then that day, I'll say I was wrong, I needed that money to make sure I have enough wealth for my old days.


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## MarcoE (May 3, 2018)

MrBlackhill said:


> And I vote for governments who want to improve the wealth redistribution, who want to make free quality education for everyone, who want to make free quality healthcare for everyone, who want to provide more money to social programs, etc.


...who fund terrorist groups in the Middle East, who send money to white supremcists in eastern Europe, who embezzle millions, who bribe, who steal, who brutalize those who protest against them... The left-wing politicians you champion as paragons of social justice aren't the saints you imagine them to be. They are corrupt thugs living it up (and funding their thuggish friends) on our dime.


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## james4beach (Nov 15, 2012)

Can we stick to the topic at hand? There are political threads out there for such ^ discussions.

So, is the bear market over now?

Over the last 12 months, XAW is now *only down -6.5%* which is hardly anything. XIC meanwhile is totally flat. It's hard to say stocks are in a bear market when the 1 year return is almost zero at this point.


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## Synergy (Mar 18, 2013)

james4beach said:


> So, is the bear market over now?


Does it really matter? Why are you so concerned over the market direction? Is your allocation too aggressive, are you not earning enough money, etc. Or are you simply trying to time the market? I recall another thread in which you seem overly concerned with whether GIC rates are going up or down. We have no control over this stuff. Better to focus your time and energy on your business, employment, etc. Make more money, add to your allocation, diversify, etc.


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## james4beach (Nov 15, 2012)

Synergy said:


> Does it really matter? Why are you so concerned over the market direction? Is your allocation too aggressive, are you not earning enough money, etc. Or are you simply trying to time the market? I recall another thread in which you seem overly concerned with whether GIC rates are going up or down. We have no control over this stuff. Better to focus your time and energy on your business, employment, etc. Make more money, add to your allocation, diversify, etc.


I find it entertaining. I don't change any of my portfolio positions based on this stuff. For example I'm not buying any new stocks in any case, because I'm currently under-allocated to fixed income. These days, I am only buying bonds and GICs -- as required by my asset allocation plan.

But bear markets do matter. True bear markets are associated with interesting changes to business conditions. I'm currently seeing some of that in my industry, so it actually does relate to my employment and consulting revenue. In bear markets, money gets tighter and it's harder to find work (in my case).

Tech has definitely been in a bear market. It affects my own business. People in my circles have less money to throw around and companies are less likely to give me projects.


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## Synergy (Mar 18, 2013)

james4beach said:


> I find it entertaining. I don't change any of my portfolio positions based on this stuff. For example I'm not buying any new stocks in any case, because I'm currently under-allocated to fixed income. These days, I am only buying bonds and GICs -- as required by my asset allocation plan.
> 
> But bear markets do matter. True bear markets are associated with interesting changes to business conditions. I'm currently seeing some of that in my industry, so it actually does relate to my employment and consulting revenue. In bear markets, money gets tighter and it's harder to find work (in my case).
> 
> Tech has definitely been in a bear market. It affects my own business. People in my circles have less money to throw around and companies are less likely to give me projects.


I don't believe it matters much for the average diversified investor. It's another story for business owners and workers. Fair point on your industry. A good thread title would be, how do I pivot my career in the event of a recession. Some businesses are more recession proof then others. Diversity who you work for / with....


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## james4beach (Nov 15, 2012)

I still think it's fun to speculate and guess at the direction of these things, even if one isn't placing any trades because of it.

I found the 2008 unravelling pretty damned interesting and entertaining to watch!


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## AlwaysMissingTheBoat (8 mo ago)

A little snack for the bears...


__ https://twitter.com/i/web/status/1598278383426834432


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## TomB16 (Jun 8, 2014)

Powell's speech was interesting. It sounds like they aren't trying to crash the economy completely. They are trying to cause damage, though.

I've been worried about Jan/Feb 23 since Jan 22. I'm not making a prediction, just that the horrendous, systemic, problems will catch IP with us by then. Earnings can only be imaginary for so long, except on the case of BitCoin. 😬


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## Covariance (Oct 20, 2020)

As anyone who has parachuted knows it is a lot more difficult to stick the perfect landing on the X in front of the crowd, than it is to merely return to earth.

My concern is the heightened risk of JPow trying to achieve the “soft landing”. Didn’t work in the 70s. Hope they get it right this time.


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## MrBlackhill (Jun 10, 2020)

Covariance said:


> it is a lot more difficult to stick the perfect landing on the X


I did skydiving, that's very true.

It made me think of this video, I had to post it, sorry.


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## Covariance (Oct 20, 2020)

AlwaysMissingTheBoat said:


> A little snack for the bears...
> 
> 
> __ https://twitter.com/i/web/status/1598278383426834432


For context JP Morgan's 2023 forecast of 209 implies a 5% decrease from expected 2022 EPS (SP500). In other words their prior estimates had expected EPS growth next year. A 5% drop is well within the historical range of typical earnings contractions during a recession.

Not suggesting it's benign or to be ignored. Just trying to frame it up fundamentally.


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## MrMatt (Dec 21, 2011)

james4beach said:


> So, is the bear market over now?
> 
> Over the last 12 months, XAW is now *only down -6.5%* which is hardly anything. XIC meanwhile is totally flat. It's hard to say stocks are in a bear market when the 1 year return is almost zero at this point.


Haven't changed my position.



MrMatt said:


> My position is simple.
> Don't care, not selling.
> 
> My detailed position is that my individual stock picks are mostly nicely valued profitable companies. I'll likely continue to get my $xk/yr in dividends. so I don't care.
> ...


I think that they've cut some froth from the markets, nothing too outlandish.
I think that interest rates are still a bit high, but I'm concerned they will overshoot because they're trying to cut demand to unhealthy levels. 
I don't know if they can ramp up demand as supply comes back online.

It should be clear to everyone our overreliance on China and global supply chains does carry risk, I think this will have complex interactions.

I am expecting a few years of "boring" in the overall economy, along with a bunch of troublesome government interference to "fix" perceived problems.


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## sags (May 15, 2010)

I think the US economy is weaker than the employment numbers would indicate, and it will roll over in 2023.

A deep recession will hit in the US......spread to Canada, and all hard assets will experience steep drops in value.

This current scenario reminds me a lot of the widespread denial in pre-2007 housing crash and financial crisis.


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## sags (May 15, 2010)

Interesting that 5 big names in insurance companies are hitting all time record highs.

This isn't good news, as the insurance companies are profiting from higher premiums, which is inflationary for their customers.

Stocks for companies that can jack prices because of government mandates or consumer need.......insurance, prescription drugs, food, are not indicative of the main street economy. (The BRK fund has significant holdings in such businesses and is performing pretty well considering the environment).

But they do affect the value of the S&P index and other markets.


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## sags (May 15, 2010)

About 25% of the layoffs are in the tech industry. The next highest sector is real estate. Wells Fargo announced another layoff in their mortgage division.

The highest job vacancies are in healthcare, which are government funded. It appears there is a shift from private employment to public employment.

In the shift from one tech company to another........55% reported the same earnings, which means 45% received a pay increase at the new company.

There are too many cross currents in the employment numbers for the level of reliance the central banks and investors have placed on them.


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## sags (May 15, 2010)

The US markets seem to be in a downtrend and the banks are getting hit pretty hard.

Jamie Dimon says that a recession is pretty much baked in for 2023. It appears the markets are back to "risk off" again.

Overall......it looks like investors have no idea what to do and are bouncing all over day to day. A couple days up........and a couple of days down.


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## Covariance (Oct 20, 2020)

The market rejected @james4beach 200day Moving average. We'll see if it settles at or above some other technical level, the fundamental 17x forward EPS at 381, or something else. Or takes another run up until it hits a reality check.

As I have said up thread, my base case expectation is a range for equities for the foreseeable future. It will be hard for it to rally until the recession and rate hikes are over (or forecast to be over). Conversely, employment is strong and consumers are spending which puts a floor under GDP and corporate revenues. For now.


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## sags (May 15, 2010)

A growing undercurrent of escalation towards global war may be happening in Ukraine, but is pretty much off the news headlines lately.

The Ukrainians hit Russian air bases located deep into Russian territory. There is an unprecedented cyber attack on a major Russian bank.

This is all fine and dandy......and people will applaud right up until the time that Putin strikes back with a tactical nuclear weapon dropped in Ukraine.

At that moment.......everything is going to change. 

Stay tuned.









Major Russian bank faces 'unprecedented' cyber attack; Russian airfield hit in suspected drone strike


Parts of southern Ukraine faced continuing missile attacks. Elsewhere, Russia's Kursk region governor said there was a drone attack near an airfield there.




www.cnbc.com


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## AlwaysMissingTheBoat (8 mo ago)

sags said:


> A growing undercurrent of escalation towards global war may be happening in Ukraine, but is pretty much off the news headlines lately.
> 
> The Ukrainians hit Russian air bases located deep into Russian territory. There is an unprecedented cyber attack on a major Russian bank.
> 
> ...


You've been predicting nukes since the start of the conflict. If you had your way, Ukraine would have ceded a whole lot of territory already. 

You've been calling for a stock market crash for most of the year. If people judged by your outlook and got panicky, they would have missed out on a lot of gains, or recovery in diminished funds. 

You have a thread on how the environment is going to hell in a handbasket and the world is essentially doomed.

Those are just the things I've picked up on since joining this forum several months ago.

You must be a real hit at parties with your eternal optimism!


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## sags (May 15, 2010)

I hope you are right as the situation in Ukraine seems to be deteriorating quickly.

Another missile attack today hundreds of kilometers into Russian territory.

Russia could consider it a pre-emptive strike on their nuclear capabilities. It is a very dangerous game that someone is playing.

_It came a day after Russia confirmed it had been hit by what it said were Soviet-era drones — at Engels air base, *home to Russia's strategic bomber fleet*, and in Ryazan, a few hours' drive from Moscow. 

The attacks on Russian bases — more than 500 kilometres from the border with Ukraine — raised questions about the effectiveness of their air defences. *They also threatened a major escalation of the nine-month war. *One of the airfields houses bombers capable of carrying nuclear weapons. _



https://www.cbc.ca/news/world/russia-ukraine-war-1.6675660


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## Faramir (11 mo ago)

sags said:


> A growing undercurrent of escalation towards global war may be happening in Ukraine, but is pretty much off the news headlines lately.
> 
> The Ukrainians hit Russian air bases located deep into Russian territory. There is an unprecedented cyber attack on a major Russian bank.
> 
> ...


That is the wet dream of all neocons - to go toe to toe with Russia.


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## Covariance (Oct 20, 2020)

Dare we mention the words "Santa Claus rally"?


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## james4beach (Nov 15, 2012)

Covariance said:


> The market rejected @james4beach 200day Moving average. We'll see if it settles at or above some other technical level, the fundamental 17x forward EPS at 381, or something else. Or takes another run up until it hits a reality check.


So far, the S&P 500 has not been able to get above the 200 day moving average.

There have been a few attempts to climb above that trendline and each has failed so far. I'm not seeing particularly strong positive-day volume either. However, it should be noted that the MSCI EAFE as well as VT have successfully moved above their 200 day averages.


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## james4beach (Nov 15, 2012)

I'm guessing there will be a roughly 25% decline in the S&P 500 from here.

Though with a strengthening USD it might be milder for us Canadians. Perhaps only a 15% to 20% decline in CAD terms. In any case, pretty mild declines probably.

I think there's a very strong possibility that cash/GICs could outperform stocks over the next two or three years.


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## Covariance (Oct 20, 2020)

It's central bank driven. We'll see how they play it. 

If you are correct then we are looking at a hard landing and the ultimate fixed income positioning would be either long duration, or a curve steepener


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## james4beach (Nov 15, 2012)

Covariance said:


> It's central bank driven. We'll see how they play it.
> 
> If you are correct then we are looking at a hard landing and the ultimate fixed income positioning would be either long duration, or a curve steepener


I don't think it takes a very "hard landing" to get -25% on the S&P 500. Just some P/E compression and mild earnings recession would do it.

The market's P/E is still awfully high, I think.


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## Covariance (Oct 20, 2020)

james4beach said:


> I don't think it takes a very "hard landing" to get -25% on the S&P 500. Just some P/E compression and mild earnings recession would do it.
> 
> The market's P/E is still awfully high, I think.


Not clear to me we are apart here James. I was making use of the central bank lexicon. For them a "hard landing" is a certified recession (mild or worse). In other words rGDP actually contracts for 2 quarters, if even for a little. Which would imply earnings contraction, and lower consumer spending.


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## james4beach (Nov 15, 2012)

Covariance said:


> Not clear to me we are apart here James. I was making use of the central bank lexicon. For them a "hard landing" is a certified recession (mild or worse). In other words rGDP actually contracts for 2 quarters, if even for a little. Which would imply earnings contraction, and lower consumer spending.


Ah thanks for clarifying. I didn't realize that the central banks call that a hard landing.

Aside: another reason I'd rather see the central banks firmly extinguish inflation, and not be too dovish, is that if structural inflation takes root this can depress P/E multiples. High inflation adds business uncertainty, and investors demand more risk compensation for that, resulting in a lower P/E multiple.

High inflation makes running a business challenging. Just one of many reasons I want to see inflation firmly stomped out of existence -- even if it means pain.


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## Covariance (Oct 20, 2020)

james4beach said:


> Ah thanks for clarifying. I didn't realize that the central banks call that a hard landing.
> 
> Aside: another reason I'd rather see the central banks firmly extinguish inflation, and not be too dovish, is that if structural inflation takes root this can depress P/E multiples. High inflation adds business uncertainty, and investors demand more risk compensation for that, resulting in a lower P/E multiple.
> 
> High inflation makes running a business challenging. Just one of many reasons I want to see inflation firmly stomped out of existence -- even if it means pain.


Fully agree. 

I was pleased to see the Fed's message this week.


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## Covariance (Oct 20, 2020)

Bear is back.


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## james4beach (Nov 15, 2012)

This chartist thinks 2023 will be a negative year, even though it's rare to see.


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## Thal81 (Sep 5, 2017)

Over time I've found that what usually happens is the opposite of what the majority of analysts predict. Thus 2023 will be a fine year for stock returns.


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## OptsyEagle (Nov 29, 2009)

Thal81 said:


> Over time I've found that what usually happens is the opposite of what the majority of analysts predict. Thus 2023 will be a fine year for stock returns.


That is not because of an unlucky coincidence or the ignorance of analysts and investors, but mainly because everyone's predications are already in the current stock prices. It is only what we can't or don't predict that moves the stock up and down from there.


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## james4beach (Nov 15, 2012)

Yes all current information is baked into the prices.

Who knows what happens next year. It certainly could be an excellent, positive year in stocks and I would not adjust my stock portfolio due to any guesses or predictions.


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## peterk (May 16, 2010)

OptsyEagle said:


> That is not because of an unlucky coincidence or the ignorance of analysts and investors, but mainly because everyone's predications are already in the current stock prices. It is only what we can't or don't predict that moves the stock up and down from there.


And furthermore, I think, IF the predictions of the average market maker turned out to be exactly true, then stocks will rise, because future uncertainty will turn to present certainty, and confidence will rise, taking prices up too.

If there is near term expectations of higher than average "uncertainty", like we all seem to be gauging that there is at the moment... then that is very bullish because an elimination of uncertainty through the passage of time over the next year, and a return to normal amounts of uncertainty, will most certainly take stocks upwards, all else being equal.


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## londoncalling (Sep 17, 2011)

A couple of points to consider regarding the analysts and media being correct.

1) Most reports are typically bullish. If the majority were bearish only contrarians would by. By definition contrarians are in the minority.
2) This is the first time in quite awhile that many are predicting a down year
3) I don't think anyone can predict with any accuracy where the market will be in a year's time.
4) Equities tend to move up over time and provide a greater return in the long run. 

I am hopeful the bear is almost done and will go back into hibernation in the spring. I am prepared for a deeper recession (how prepared will be determined by how long and how deep ), but I expect a volatile and sideways equity market for awhile. Of course central bank action and government interference will remain the largest factor on what happens going forward. Be interesting to see how close the 2022 predictions will be this year as well as what the guesstimates will be for 2023.


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## james4beach (Nov 15, 2012)

Congrats everyone! You just survived the first year of a bear market.

We haven't had one of those in a long time.


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## sags (May 15, 2010)

Will 2023 be a warm and cuddy teddy bear.......or a face ripping grizzly bear ?

I think earnings and profits will matter most for stocks. Companies with no profits who rely on debt are destined for the dust bin of history.

Back to the fundamentals.


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## james4beach (Nov 15, 2012)

Impossible to predict where markets will go. But I think most investors (and the market) are wrong in their belief that interest rates will be cut soon.

I think inflation is going to remain well above the 2% target for at least a couple years, and interest rates will stay high as well. I expect that these persistently high interest rates will translate to a bad year in both stocks and real estate.

But that doesn't necessarily mean stocks will be down dramatically. I wouldn't be surprised to see a flat-ish year with little change in stocks. Again these are all just guesses, markets are wild and unpredictable so who knows.


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## londoncalling (Sep 17, 2011)

james4beach said:


> Congrats everyone! You just survived the first year of a bear market.
> 
> We haven't had one of those in a long time.


I get the gist of your post but thought I should clarify a few points as well as remind everyone that bears come and go and can be easily forgotten when the gains erase the declines I didn't think we hit the one year mark but upon review the drop started January 3rd in the US. If memory serves the Nasdaq didn't enter bear territory till March, S&P in June. The previous bear was 2020 which is not that long ago. Just as the pandemic disrupted our daily lives, that market tumble was disruptive and unusual. I certainly don't want to experience a bear market every two years but it's possible. I think bear markets are great learning opportunities. No two bears are alike. We know the current bear won't be like 2020. Looking at recent history will it be more like 2007-09 or 2000-02? or worse?

A Brief History of Bear Markets (investopedia.com)


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## sags (May 15, 2010)

It looks an awful lot like 2008 to me in some ways, because it involves real estate, stock markets and interest rates.

When did the Fed decide that 2% inflation was the preferred rate and how did they come to that conclusion.

I would be very surprised if the inflation naturally imposed on governments at all level was kept to 2%, given they are always required to maintain and expand services.


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## sags (May 15, 2010)

A natural rate of inflation & a natural rate of unemployment - Effective Demand Research (typepad.com)

_The basic idea is that if prices are constrained from rising when there are inflation pressures from commodities or consumer demand, jobs will be cut short. Firms will not be able to maintain as much labor. The increased pressures from costs not being released through higher prices will cut into production possibilities. Thus, higher unemployment corresponds with a lower inflation target.

Joseph Stiglitz wrote back in 2008...
"Most importantly, both developing and developed countries need to abandon inflation targeting. The struggle to meet rising food and energy prices is hard enough. *The weaker economy and higher unemployment that inflation targeting brings* won’t have much impact on inflation; it will only make the task of surviving in these conditions more difficult." (source)

Does inflation have a natural rate? This seems to be the key question. Unemployment has a natural rate. Even GDP has a natural rate. If you push unemployment below its natural rate, you get problems of economic over-heating. If you push GDP above its natural rate, there are risks of inflation and economic over-heating too. 

What would it mean if the natural rate of inflation for the US was 3%, and the Fed kept trying to push it to 2%?_


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## sags (May 15, 2010)

In 2008 it took awhile for the full effects to take hold, but when it did the layoffs began in earnest, dividends were cut, people were foreclosed on their homes and bankruptcies shot up.

Many older people started collecting early Social Security benefits, much to their later detriment. President Bush enacted laws making it more difficult to declare bankruptcy, and it took years for many people to see their credit scores improve to the point they could access credit again.

For their part, the mortgage lenders foreclosed on homes and let them rot in place, and some reduced their offices or closed down completely.

Banks reduced or eliminated credit limits for HELOCs based on the decline of home prices in some geographic locations.

It was very difficult times for many Americans, while barely causing a ripple in Canada.


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## sags (May 15, 2010)

Many may not realize it, but the 2008 collapse was not caused by the Fed or the US government spending.

It was caused by the machinations of Wall Street bankers who created a new breed of MBS (mortgage backed security) derivatives.

They created "tranches" within the MBS that contained sub-prime (high risk) mortgages and AAA mortgages together in the same bond to acquire an investment grade rated bond they could sell to pension funds, large institutions, governments, and other banks. This was concealed from the buyers of the bonds.

A small bank in Iceland invested almost all their assets in these types of bonds and wanted to borrow from another bank. The other bank requested to examine the assets and were shocked to see what those bonds contained. They refused the inter-bank financing and the word spread quickly to other banks there was a big problem in the system.

Alan Greenspan, who had been the Fed Chairman until 2006, recalled sitting in his home office watching the global financial system freeze up in a matter of a few minutes.

The news got out. There were emergency meetings with regulators and big banks held in NY on a Sunday night at midnight. They had to come up with a plan and they did.

It was quite a mess, with the MBS bonds sold and resold so many times that nobody knew who held which mortgage on which house.

In foreclosure courts, judges routinely demanded proof of ownership by the lender and it couldn't be produced, so the people remained in the home and stopped paying their mortgages. There was nothing the lender could do if they couldn't prove ownership of the original mortgage.

Some major historic banks collapsed......Lehman Bros and Bear Stearns, and others were taken over by other banks. Many small regional banks and alternative lenders went bankrupt. Some retrenched out of Canada leaving their mortgage borrowers scrambling to find a new lender when the renewal came due.

All in all..........it was quite a mess.

During the collapse there were people driving around filming new subdivisions full of partially completed homes that were abandoned. Cities ended up bulldozing homes.

People lost their homes, jobs, credit ratings, and had to retire with a much lower standard of living. There was a huge financial impact on almost everyone.

I don't see anything like this happening in Canada, except that some people will lose their homes if they bought within the last 5 years. Some people will lose their jobs.

It won't be like the US in 2008 though........we hope.


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## sags (May 15, 2010)

_In retrospect, it is easy to see what happened. The 2008 crisis was triggered by the mother of all bank runs; a panicky loss of confidence in the financial system, which had loaded up on lousy mortgages that remained unsafe even though they were wrapped up in new and exotic ways. Financial institutions had made too many loss-making investments, but the bubble they had inflated delayed the day of reckoning—until it didn’t.

Prophet and loss: Alan Greenspan and the making of 2008 financial crisis (theweek.in) _


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## james4beach (Nov 15, 2012)

I really don't think this is anything like 2008. The situation back then started in 2007 and it was very chaotic. Banks and mortgage lenders were blowing up all over the place, for example several US banks had started to implode in 2007.

The market was also moving very erratically with enormous volatility. In contrast, today's market has minimal volatility and is moving pretty smoothly. There isn't anything too chaotic or dramatic happening.

I just think the stocks will be "depressed" and not advance for a while. Doesn't mean they have to crash and implode.


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## Faramir (11 mo ago)

OptsyEagle said:


> That is not because of an unlucky coincidence or the ignorance of analysts and investors, but mainly because everyone's predications are already in the current stock prices. It is only what we can't or don't predict that moves the stock up and down from there.


But what information is the market relying on? Is it believing the naysayers in the Biden Admin who continue to deny the USA is in a recession?


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## Faramir (11 mo ago)

My bet is another ugly year for the economy. The question is when will the market hit bottom, and that is much harder to predict. My hope is a huge correction so I can load up.


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## james4beach (Nov 15, 2012)

Faramir said:


> My bet is another ugly year for the economy. The question is when will the market hit bottom, and that is much harder to predict. My hope is a huge correction so I can load up.


Also keep in mind, there is a possibility the market won't tank. This is the danger of sitting on a ton of cash and waiting for a big drop. You might not ever get it.


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## OptsyEagle (Nov 29, 2009)

Faramir said:


> My bet is another ugly year for the economy. * The question is when will the market hit bottom,* and that is much harder to predict. My hope is a huge correction so I can load up.


When most investors confidently believe that it won't. The market, by its design, will always move in a direction opposite of any point of overly positive optimism or overly negative pessimism. That is because, it is not how investors feel that moves markets but more their buying and selling, and that is using done in advance of those feelings. It is the selling that makes people so negative, not the other way around. The declining market reinforces investors belief that they are right, right up until they hit their last sale that they are able or willing to make. That is the point of maximum pessimism. Also known as the bottom.

In this particular market the bottom may be in our future or it might have gone by when everyone was so confidently negative back in October of 2022. People were incredibly negative in October. I noticed that just about every investor believed that a declining market was a no-brainer.

Since investors can quickly change from pessimism to optimism and back again and measuring the true level of either is very difficult, plus we have unknown events in the future that will always affect sentiment, I can only agree that the stock market is very hard to predict. The best thing you can do, however, is look less at optimistic signs and try to identify periods when investors seem to only sprout widely held very pessimistic opinions...and then buy the daylights out of the stock market and try not to look at it for a while. You will do quite well.


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## Covariance (Oct 20, 2020)

Technically speaking the market reflects all information and all forecasts - on a weighted average basis. One or two people's opinions might be in there that accurately foretell what the future holds for us. But what is priced is consensus. IE the average expectation.


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## OptsyEagle (Nov 29, 2009)

The last two posts pretty much explains to investors the only hope IMO of adding any kind of market timing to your personal performance. As @Covariance has indicated, the first thing an investor needs to acknowledge is that all forecasts and opinions are pretty much baked into the current pricing, making the benefit of their actual opinion virtually useless, and the only thing that can actually move the market are surprises to that opinion. 

As I have stated, in the post just above his, is that although their opinions themselves are useless, their sentiment of opinion can be used, but only at the extremes. In other words, at times like now where you can see a combination of both optimistic signs (reducing inflation and the opinions that go with that) and pessimistic signs (rising interest rates and the opinions that go with that) there is virtually no way to time the market IMO. It could go in either direction depending on what UNKNOWN information comes forward to surprise us. 

At the extremes, however, when one side, either optimistic or pessimistic, tends to be so strong that even if the other contrary opionion exists out there, those investor feel that they would look totally stupid to even mention it. Those are the times of extremes and placing a bet on the other side of that widely held opinion "has the best odds" of being successful, within a few months, a year at the most. The reason I say "has the best odds" of being successful, is that there will never be a time when you can know what the future precisely holds. What surprises are in store for all of us. Since those surprises tend to be randomly distributed, between good news and bad news, what you will find is *when you invest during the extremes the losses you experience by the contrary surprises to your bet, will be significantly less then the gains you earn when the surprises come in your favour*. PLUS, since most investors are expecting the extremes,* the same degree of confirming news has a much less effect on the stock market, in that direction, then the contrary news, has in the other direction, to portfolio movements. *

In other words the benefit of contray investing, when done at the extremes of investor sentiment, is magnify by those investment laws highlighted above in bold. Definitely something an investor needs to learn, either by reading and understanding this OR by losing a boatload of money over a long period of time. Either way gets the learning job done.


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## doctrine (Sep 30, 2011)

Faramir said:


> My bet is another ugly year for the economy. The question is when will the market hit bottom, and that is much harder to predict. My hope is a huge correction so I can load up.


Predicting is hard. It is interesting to note, however, that virtually all markets worldwide are out of bear market territory, as defined by 20% below their all time peaks reached in the last 12-16 months. This includes Canada, US, developed, and emerging markets. The only major equity market in bear territory is the NASDAQ, i.e. technology. This definitely is no longer a bear market to me. Commodities are very widely in bear markets, which can be very positive for economic growth (i.e. cheap inputs). 

As markets are forward looking, I see markets today as anticipating no to low growth over the next year, but hardly a worldwide recession. Whether or not you believe that and wish to take action, would probably require a change in that forecast. If you are holding out for a correction, then you probably should be expecting economic conditions to worsen beyond what is already envisioned.


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