2018/2019 Bear Market
- Thread starter The Beast1
- Start date
Foolsgo1d
Peacock
Arado said:
But his team isn't doing anything with the Chinese.
Trump said a deal was soon, China then whacks more tarriffs on straight after. Trump is now saying China should come to the table in a threatening manner but who says they have to?
Trump has an election, Communists do not know what an election is. They can wait this out. The only people hurting from this are importers/exporters and the consumers taking the hit.
The Bad news for late fall 2019 and good news for spring 2020 - and the main reason Trump is reelected in 2020...
https://www.tradingview.com/chart/E...-Dec-24-2018-Swing-Low-to-26-July-19-ATH-ABC/
ESU19 S&P Emini Dec 24, 2018 Swing Low to 26 July 19, ATH ABC
A Begin 2347.25, A High 3029.50 = 682.25
682.25 * .618= 421.50
3029.50 ATH (A High) - 421.50 = 2608 B Wave Target 2Oct19 which is a perfect. 618 retracement from ATH to Dec 24 Swing low.
2608 B Target + 682 (A=C) target 2 March 2020 = 3290/3300 as the market moves in 50s and 100s 3300 being a century target.
https://www.tradingview.com/chart/E...-Dec-24-2018-Swing-Low-to-26-July-19-ATH-ABC/
ESU19 S&P Emini Dec 24, 2018 Swing Low to 26 July 19, ATH ABC
A Begin 2347.25, A High 3029.50 = 682.25
682.25 * .618= 421.50
3029.50 ATH (A High) - 421.50 = 2608 B Wave Target 2Oct19 which is a perfect. 618 retracement from ATH to Dec 24 Swing low.
2608 B Target + 682 (A=C) target 2 March 2020 = 3290/3300 as the market moves in 50s and 100s 3300 being a century target.
The Three Big Issues and the 1930s Analogue
28/08/2019
Ray Dalio
Ray Dalio
Co-Chief Investment Officer & Co-Chairman of Bridgewater A... See more
The most important forces that now exist are:
1) The End of the Long-Term Debt Cycle (When Central Banks Are No Longer Effective)
+
2) The Large Wealth Gap and Political Polarity
+
3) A Rising Work Power Challenging an Existing World Power
=
The Bond Blow-Off, Rising Gold Prices, and the Late 1930s Analogue
In other words now 1) central banks have limited ability to stimulate, 2) there is large wealth and political polarity and 3) there is a conflict between China as a rising power and the U.S. as an existing world power. If/when there is an economic downturn, that will produce serious problems in ways that are analogous to the ways that the confluence of those three influences produced serious problems in the late 1930s.
Before I get into the meat of what I hope to convey, I will repeat my simple timeless and universal template for understanding and anticipating what is happening in the economy and markets.
My Template
There are four important influences that drive economies and markets:
Productivity
The short-term debt/business cycle
The long-term debt cycle
Politics (within countries and between countries).
There are three equilibriums:
Debt growth is in line with the income growth required to service the debt,
The economy’s operating rate is neither too high (because that will produce unacceptable inflation and inefficiencies) nor too low (because economically depressed levels of activity will produce unacceptable pain and political changes), and
The projected returns of cash are below the projected returns of bonds, which are below the projected returns of equities and the projected returns of other “risky assets.”
And there are two levers that the government has to try to bring things into equilibrium:
Monetary policy
Fiscal policy
The equilibriums move around in relation to each other to produce changes in each like a perpetual motion machine, simultaneously trying to find their equilibrium level. When there are big deviations from one or more of the equilibriums, the forces and policy levers react in ways that one can pretty much expect in order to move them toward their equilibriums. For example, when growth and inflation fall to lower than the desired equilibrium levels, central banks will ease monetary policies which lowers the short term interest rate relative to expected bond returns, expected returns on equities, and expected inflation. Expected bond returns, equity returns, and inflation themselves change in response to changes in expected conditions (e.g. if expected growth is falling, bond yields will fall and stock prices will fall). These price changes happen until debt and spending growth pick up to shift growth and inflation back toward inflation. And of course all this affects politics (because political changes will happen if the equilibriums get too far out of line), which affects fiscal and monetary policy. More simply and most importantly said, the central bank has the stimulant which can be injected or withdrawn and cause these things to change most quickly. Fiscal policy, which changes taxes and spending in politically motivated ways, can also be changed to be more stimulative or less stimulative in response to what is needed but that happens in lagging and highly inefficient ways.
For a simpler explanation of this template see my 30-minute animated video “How the Economic Machine Works” and for a more comprehensive explanation see my book Understanding the Principles of Big Debt Crises, which is available free as a PDF here or in print on Amazon. Also, to learn more about our extensive debt cycle research, please visit our debt crises research library on Bridgewater.com.
Looking at What is Happening Now in the Context of That Template
Regarding the above template and where we are now, in my opinion, the most important things that are happening (which last happened in the late 1930s) are a) we are approaching the ends of both the short-term and long-term debt cycles in the world’s three major reserve currencies, while b) the debt and non-debt obligations (e.g., healthcare and pensions) that are coming at us are larger than the incomes that are required to fund them, c) large wealth and political gaps are producing political conflicts within countries that are characterized by larger and more extreme levels of internal conflicts between the rich and the poor and between capitalists and socialists, d) external politics is driven by the rising of an emerging power (China) to challenge the existing world power (the U.S.), which is leading to a more extreme external conflict and will eventually lead to a change in the world order, and e) the excess expected returns of bonds is compressing relative to the returns on the cash rates central banks are providing.
As for monetary policy and fiscal policy responses, it seems to me that we are classically in the late stages of the long term debt cycle when central banks’ power to ease in order to reverse an economic downturn is coming to an end because:
Monetary Policy 1 (i.e., the ability to lower interest rates) doesn’t work effectively because interest rates get so low that lowering them enough to stimulate growth doesn’t work well,
Monetary Policy 2 (i.e., printing money and buying financial assets) doesn’t work well because that doesn’t produce adequate credit in the real economy (as distinct from credit growth to leverage up investment assets), so there is “pushing on a string.” That creates the need for…
Monetary Policy 3 (large budget deficits and monetizing of them) which is problematic especially in this highly politicized and undisciplined environment.
More specifically, central bank policies will push short-term and long-term real and nominal interest rates very low and print money to buy financial assets because they will need to set short-term interest rates as low as possible due to the large debt and other obligations (e.g. pensions and healthcare obligation) that are coming due and because of weakness in the economy and low inflation. Their hope will be that doing so will drive the expected returns of cash below the expected returns of bonds, but that won’t work well because a) these rates are too close to their floors, b) there is a weakening in growth and inflation expectations which is also lowering the expected returns of equities, c) real rates need to go very low because of the large debt and other obligations coming due, and d) the purchases of financial assets by central banks stays in the hands of investors rather than trickles down to most of the economy (which worsens the wealth gap and the populist political responses). This has happened at a time when investors have become increasingly leveraged long due to the low interest rates and their increased liquidity. As a result we see the market driving down short term rates while central banks are also turning more toward long-term interest rate and yield curve controls, just as they did from the late 1930s through most of the 1940s.
To put this interest rate situation in perspective, see the long-term debt/interest rate wave in the following chart. As shown below, there was a big inflationary blow-off that drove interest rates into a blow-off in 1980-82. During that period, Paul Volcker raised real and nominal interest rates to what were called the highest levels “since the birth of Jesus Christ,” which caused the reversal.
No alt text provided for this image
During the period leading into the 1980-82 peak, we saw the blow-off in gold. The below chart shows the gold price from 1944 (near the end of the war and the beginning of the Bretton Woods monetary system) into the 1980-82 period (the end of the inflationary blow-off). Note that the bull move in gold began in 1971, when the Bretton Woods monetary system that linked the dollar to gold broke down and was replaced by the current fiat monetary system. The de-linking of the dollar from gold set off that big move. During the resulting inflationary/gold blow-off, there was the big bear move in bonds that reversed with the extremely tight monetary policies of 1979-82.
No alt text provided for this image
Since then, we have had a mirror-like symmetrical reversal (a dis/deflationary blow-off). Look at the current inflation rates at the current cyclical peaks (i.e. not much inflation despite the world economy and financial markets being near a peak and despite all the central banks’ money printing) and imagine what they will be at the next cyclical lows. That is because there are strong deflationary forces at work as productive capacity has increased greatly. These forces are creating the need for extremely loose monetary policies that are forcing central banks to drive interest rates to such low levels and will lead to enormous deficits that are monetized, which is creating the blow-off in bonds that is the reciprocal of the 1980-82 blow-off in gold. The charts below show the 30-year T-bond returns from that 1980-82 period until now, which highlight the blow-off in bonds.
No alt text provided for this image
To understand the current period, I recommend that you understand the workings of the 1935-45 period closely, which is the last time similar forces were at work to produce a similar dynamic.
Please understand that I’m not saying that the past is prologue in an identical way. What I am saying that the basic cause/effect relationships are analogous: a) approaching the ends of the short-term and long-term debt cycles, while b) the internal politics is driven by large wealth and political gaps, which are producing large internal conflicts between the rich and the poor and between capitalists and socialists, and c) the external political conflict that is driven by the rising of an emerging power to challenge the existing world power, leading to significant external conflict that eventually leads to a change in the world order. As a result, there is a lot to be learned by understanding the mechanics of what happened then (and in other analogous times before then) in order to understand the mechanics of what is happening now. It is also worth understanding how paradigm shifts work and how to diversify well to protect oneself against them.
28/08/2019
Ray Dalio
Ray Dalio
Co-Chief Investment Officer & Co-Chairman of Bridgewater A... See more
The most important forces that now exist are:
1) The End of the Long-Term Debt Cycle (When Central Banks Are No Longer Effective)
+
2) The Large Wealth Gap and Political Polarity
+
3) A Rising Work Power Challenging an Existing World Power
=
The Bond Blow-Off, Rising Gold Prices, and the Late 1930s Analogue
In other words now 1) central banks have limited ability to stimulate, 2) there is large wealth and political polarity and 3) there is a conflict between China as a rising power and the U.S. as an existing world power. If/when there is an economic downturn, that will produce serious problems in ways that are analogous to the ways that the confluence of those three influences produced serious problems in the late 1930s.
Before I get into the meat of what I hope to convey, I will repeat my simple timeless and universal template for understanding and anticipating what is happening in the economy and markets.
My Template
There are four important influences that drive economies and markets:
Productivity
The short-term debt/business cycle
The long-term debt cycle
Politics (within countries and between countries).
There are three equilibriums:
Debt growth is in line with the income growth required to service the debt,
The economy’s operating rate is neither too high (because that will produce unacceptable inflation and inefficiencies) nor too low (because economically depressed levels of activity will produce unacceptable pain and political changes), and
The projected returns of cash are below the projected returns of bonds, which are below the projected returns of equities and the projected returns of other “risky assets.”
And there are two levers that the government has to try to bring things into equilibrium:
Monetary policy
Fiscal policy
The equilibriums move around in relation to each other to produce changes in each like a perpetual motion machine, simultaneously trying to find their equilibrium level. When there are big deviations from one or more of the equilibriums, the forces and policy levers react in ways that one can pretty much expect in order to move them toward their equilibriums. For example, when growth and inflation fall to lower than the desired equilibrium levels, central banks will ease monetary policies which lowers the short term interest rate relative to expected bond returns, expected returns on equities, and expected inflation. Expected bond returns, equity returns, and inflation themselves change in response to changes in expected conditions (e.g. if expected growth is falling, bond yields will fall and stock prices will fall). These price changes happen until debt and spending growth pick up to shift growth and inflation back toward inflation. And of course all this affects politics (because political changes will happen if the equilibriums get too far out of line), which affects fiscal and monetary policy. More simply and most importantly said, the central bank has the stimulant which can be injected or withdrawn and cause these things to change most quickly. Fiscal policy, which changes taxes and spending in politically motivated ways, can also be changed to be more stimulative or less stimulative in response to what is needed but that happens in lagging and highly inefficient ways.
For a simpler explanation of this template see my 30-minute animated video “How the Economic Machine Works” and for a more comprehensive explanation see my book Understanding the Principles of Big Debt Crises, which is available free as a PDF here or in print on Amazon. Also, to learn more about our extensive debt cycle research, please visit our debt crises research library on Bridgewater.com.
Looking at What is Happening Now in the Context of That Template
Regarding the above template and where we are now, in my opinion, the most important things that are happening (which last happened in the late 1930s) are a) we are approaching the ends of both the short-term and long-term debt cycles in the world’s three major reserve currencies, while b) the debt and non-debt obligations (e.g., healthcare and pensions) that are coming at us are larger than the incomes that are required to fund them, c) large wealth and political gaps are producing political conflicts within countries that are characterized by larger and more extreme levels of internal conflicts between the rich and the poor and between capitalists and socialists, d) external politics is driven by the rising of an emerging power (China) to challenge the existing world power (the U.S.), which is leading to a more extreme external conflict and will eventually lead to a change in the world order, and e) the excess expected returns of bonds is compressing relative to the returns on the cash rates central banks are providing.
As for monetary policy and fiscal policy responses, it seems to me that we are classically in the late stages of the long term debt cycle when central banks’ power to ease in order to reverse an economic downturn is coming to an end because:
Monetary Policy 1 (i.e., the ability to lower interest rates) doesn’t work effectively because interest rates get so low that lowering them enough to stimulate growth doesn’t work well,
Monetary Policy 2 (i.e., printing money and buying financial assets) doesn’t work well because that doesn’t produce adequate credit in the real economy (as distinct from credit growth to leverage up investment assets), so there is “pushing on a string.” That creates the need for…
Monetary Policy 3 (large budget deficits and monetizing of them) which is problematic especially in this highly politicized and undisciplined environment.
More specifically, central bank policies will push short-term and long-term real and nominal interest rates very low and print money to buy financial assets because they will need to set short-term interest rates as low as possible due to the large debt and other obligations (e.g. pensions and healthcare obligation) that are coming due and because of weakness in the economy and low inflation. Their hope will be that doing so will drive the expected returns of cash below the expected returns of bonds, but that won’t work well because a) these rates are too close to their floors, b) there is a weakening in growth and inflation expectations which is also lowering the expected returns of equities, c) real rates need to go very low because of the large debt and other obligations coming due, and d) the purchases of financial assets by central banks stays in the hands of investors rather than trickles down to most of the economy (which worsens the wealth gap and the populist political responses). This has happened at a time when investors have become increasingly leveraged long due to the low interest rates and their increased liquidity. As a result we see the market driving down short term rates while central banks are also turning more toward long-term interest rate and yield curve controls, just as they did from the late 1930s through most of the 1940s.
To put this interest rate situation in perspective, see the long-term debt/interest rate wave in the following chart. As shown below, there was a big inflationary blow-off that drove interest rates into a blow-off in 1980-82. During that period, Paul Volcker raised real and nominal interest rates to what were called the highest levels “since the birth of Jesus Christ,” which caused the reversal.
No alt text provided for this image
During the period leading into the 1980-82 peak, we saw the blow-off in gold. The below chart shows the gold price from 1944 (near the end of the war and the beginning of the Bretton Woods monetary system) into the 1980-82 period (the end of the inflationary blow-off). Note that the bull move in gold began in 1971, when the Bretton Woods monetary system that linked the dollar to gold broke down and was replaced by the current fiat monetary system. The de-linking of the dollar from gold set off that big move. During the resulting inflationary/gold blow-off, there was the big bear move in bonds that reversed with the extremely tight monetary policies of 1979-82.
No alt text provided for this image
Since then, we have had a mirror-like symmetrical reversal (a dis/deflationary blow-off). Look at the current inflation rates at the current cyclical peaks (i.e. not much inflation despite the world economy and financial markets being near a peak and despite all the central banks’ money printing) and imagine what they will be at the next cyclical lows. That is because there are strong deflationary forces at work as productive capacity has increased greatly. These forces are creating the need for extremely loose monetary policies that are forcing central banks to drive interest rates to such low levels and will lead to enormous deficits that are monetized, which is creating the blow-off in bonds that is the reciprocal of the 1980-82 blow-off in gold. The charts below show the 30-year T-bond returns from that 1980-82 period until now, which highlight the blow-off in bonds.
No alt text provided for this image
To understand the current period, I recommend that you understand the workings of the 1935-45 period closely, which is the last time similar forces were at work to produce a similar dynamic.
Please understand that I’m not saying that the past is prologue in an identical way. What I am saying that the basic cause/effect relationships are analogous: a) approaching the ends of the short-term and long-term debt cycles, while b) the internal politics is driven by large wealth and political gaps, which are producing large internal conflicts between the rich and the poor and between capitalists and socialists, and c) the external political conflict that is driven by the rising of an emerging power to challenge the existing world power, leading to significant external conflict that eventually leads to a change in the world order. As a result, there is a lot to be learned by understanding the mechanics of what happened then (and in other analogous times before then) in order to understand the mechanics of what is happening now. It is also worth understanding how paradigm shifts work and how to diversify well to protect oneself against them.
You have to actually time it right . Look at the 3,5 and ten year highs. If you buy gold etf now it’s probably too late
Jaydublin said:
Heard the episode on Meb Faber's podcast that explicitly details how he's going long on Eurodollar futures as the best bet for interest rates being slashed in the upcoming recession. Looked into it and seems very asymmetric risk/reward: potential 10x on that trade if he's right and fed slashes rates to 0%, even more if they go negative. Protection on the downside as the current environment makes a Fed raise in interest rates extremely unlikely. If they stay constant, you're out a little on commissions and a few BP's worth against you. I think I'm in...
Blake2 said:
Here is the one year chart for spdf(one of the top gold ETFs)
Basically you are about 6 months late to be buying a gold ETF
[or 3 months, or whatever]
I've been thinking about liquidating my pension lol. It's not much but I am starting to doubt I will ever see a penny of it if I don't.jeffreyjerpp said:
Arado said:
The myth of the infallible central bank is about to be exposed. Grab your popcorn (and guns).
XAU still has upside. Only took a dip last week because of the strong employment numbers. The market is starting to price in a 25 bps cut which will mean XAU going up.
jeffreyjerpp
Kingfisher
Swordfish1010 said:
Do you have a state or municipal pension? How broke is the government that is supposed to pay it?
If you're depending on a state like California, Illinois, or Connecticut, then yeah take the money and run.
Otherwise hard to say what the best play might be.
I've spoken with many of the people in the ^ city and muni pensions and it is unreal just how clueless they are regarding its imminent demise. Even if 3 years isn't imminent, but 10, they have absolutely no clue. Mostly because they don't want to believe it or think about it.
It's funny how little most people think about things, on average.
It's funny how little most people think about things, on average.
Kid Twist said:
How can pensions possibly claim to be able to take care of their obligations if they can't even get annual returns over inflation? It's pretty mindblowing the way Fed tomfoolery has screwed over the fixed income investors, just as the baby boomer generation is starting to retire.
jeffreyjerpp
Kingfisher
Arado said:
They never thought they’d have to endure the consequences of their own behavior. Figured they could kick the van down the road and some future generation would pay the price for their irresponsibility.
“Someone’s going to have to figure this out, someday!”
Well, turns out “someday” is now, and the “someone” is them. Couldn’t have happened to a nicer group of people.
Arado said:
They can't take care of their obligations. Most pensions are vastly underfunded. Some states and cities are only funded on the order of something like 20%. Even if they were fully funded, most have assumed (hoped?) rates of return of 7.5% or 8% over the long term. While the market has been doing well for the best decade, eventually it is going to reverse in the next recession; so underfunded pensions will not even be making anywhere near what they need to keep going and are either going to need a bail out or go bust.
Some pensions had to stop people taking money out because there were a few places where the participants realized the pension was going to go bust eventually, so they changed jobs so they would take all their money out, making the pension worse off as people started to flee.
jeffreyjerpp
Kingfisher
Gold is finally pulling back beneath the $1500 level. Hopefully silver comes back down, too.
I believe the precious metals are finally, after all these years, ready to make an amazing multi-year bull run.
Therefore I want to continue DCAing into GDX, and add SLV, and GLD to the portfolio.
Anyone else intent on doing the same? How far would you hope Gold pulls back before buying more?
I think anything under $1450 will end up doing very well in a 1 year+ time horizon.
I believe the precious metals are finally, after all these years, ready to make an amazing multi-year bull run.
Therefore I want to continue DCAing into GDX, and add SLV, and GLD to the portfolio.
Anyone else intent on doing the same? How far would you hope Gold pulls back before buying more?
I think anything under $1450 will end up doing very well in a 1 year+ time horizon.
Yes, let me give you a quick taste of Chicago's state of Affairs: Muni at 23% funded, Police at 23%, Fire at 17%, the County a robust 60% (teehee) and the state of IL a symbol on your keyboard above junk bond status. Hmm.
Another great stat: at least one of the above pension funds, or more, got around 8% ROI over the last 10 years. Yes, the greatest bull run in the history of the country, post 2008 crisis.
These same funds stated goals are near yearly 7% just to keep their numbers in line, with some confidence. Sounds like they are hoping for a 40 year bull run, right?
:american:
opcorn2:
Another great stat: at least one of the above pension funds, or more, got around 8% ROI over the last 10 years. Yes, the greatest bull run in the history of the country, post 2008 crisis.
These same funds stated goals are near yearly 7% just to keep their numbers in line, with some confidence. Sounds like they are hoping for a 40 year bull run, right?
:american:
opcorn2:It is starting to look like QE 4 has begun, though will it be enough to hold off a recession?
Ha, does anyone actually believe anything the Fed says anymore? They are monetizing the debt! When the markets actually catch on to the long term consequences of this, watch out!
Ha, does anyone actually believe anything the Fed says anymore? They are monetizing the debt! When the markets actually catch on to the long term consequences of this, watch out!