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2018/2019 Bear Market
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<blockquote data-quote="Arado" data-source="post: 1231242" data-attributes="member: 308"><p>RDF, appreciate your input on my points. Here are some followup thoughts. I'm going to sound like a broken record droning on and on about the fed, but I really think Central Bank actions are key. </p><p></p><p><strong>Fed Policy Reversal</strong></p><p></p><p>Once it appears that the Fed will lower interest rates or stop the drawdown of the balance sheet, then I would be happy to reconsider my position. You can easily buy back into whatever index fund you were in once the policy announcement is made. You may not profit from the rally that will occur that day, but you will benefit from the subsequent expansions. For now though there is no evidence of a dramatic reversal in Fed policy. </p><p></p><p><strong>Can't returns just be lower for the next few years? </strong></p><p></p><p>Excluding inflation or a massive tech bonanza, the average returns over the next 10 years will probably be 2 or 3% so I agree with you there. However, if you look at a historical chart of the S&P, that is quite rare. What is more common are sharp declines in the indexes prior to and and during recessions. </p><p></p><p>The indexes usually don't just muddle along - smart money flocks to bonds and treasuries if they can get nearly the same returns with much less risk. However, people holding 401Ks and those who preach "time in the market is better than timing the market" are left holding the bag when the smart money gets out - the average guy gets screwed. </p><p></p><p>If you lose 50% of your portfolio's value, you need a subsequent 100% return to get back to just the original value. Likely to happen with post-crash Fed stimulus, but no guarantee that you won't lose a ton of value to inflation by then. </p><p></p><p><strong>Why is debt all of a sudden a problem now? What about 2013?</strong></p><p></p><p>Simple - from October 2012 till October 2014 - the time period you mention above, the Federal Reserve increased the size of the balance sheet from 2.8 trillion dollars to 4.5 trillion dollars during QE3. </p><p></p><p><img src="https://www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/01-overflow/fed%20balance%20sheet%20vs%20es%20DB.jpg" alt="" class="fr-fic fr-dii fr-draggable " style="" /> </p><p></p><p><strong>Why isn't the impact of a worldwide slowdown similar to the one in 2015/2016?</strong></p><p></p><p>Again, in 2015/2016 there was massive monetary stimulus from the ECB and BOJ to prop up the markets. This is the only thing that propped up assets once the Fed reserve stopped QE. In 2015, the Fed raised rates by a measly 25 basis points and the markets still freaked out until they were saved by ECB/BOJ. </p><p></p><p><img src="https://static.seekingalpha.com/uploads/2017/10/28/47769140-15092108444392734.jpg" alt="" class="fr-fic fr-dii fr-draggable " style="" /></p><p></p><p><strong>Other thoughts</strong></p><p></p><p>I'm actually banking on a relief rally at least so that people can get their bearings and I can sell off the rest of my positions without taking too much of a loss. I forgot one point that I didn't mention earlier:</p><p></p><p>12) Yield curve inversion of the 2 and 5 year treasury bonds. 2 and 10 year spread is also extremely thin so could also invert in the near future. This is a very consistent recession indicator. </p><p></p><p>Obviously no one knows what is going to happen, but (as an extreme example) anyone that bought into the market in July 2000 didn't recover their value until October 2015. Dividends made up some of the difference, but were canceled out by inflation. </p><p></p><p>Peter Schiff has to be right eventually!</p></blockquote><p></p>
[QUOTE="Arado, post: 1231242, member: 308"] RDF, appreciate your input on my points. Here are some followup thoughts. I'm going to sound like a broken record droning on and on about the fed, but I really think Central Bank actions are key. [b]Fed Policy Reversal[/b] Once it appears that the Fed will lower interest rates or stop the drawdown of the balance sheet, then I would be happy to reconsider my position. You can easily buy back into whatever index fund you were in once the policy announcement is made. You may not profit from the rally that will occur that day, but you will benefit from the subsequent expansions. For now though there is no evidence of a dramatic reversal in Fed policy. [b]Can't returns just be lower for the next few years? [/b] Excluding inflation or a massive tech bonanza, the average returns over the next 10 years will probably be 2 or 3% so I agree with you there. However, if you look at a historical chart of the S&P, that is quite rare. What is more common are sharp declines in the indexes prior to and and during recessions. The indexes usually don't just muddle along - smart money flocks to bonds and treasuries if they can get nearly the same returns with much less risk. However, people holding 401Ks and those who preach "time in the market is better than timing the market" are left holding the bag when the smart money gets out - the average guy gets screwed. If you lose 50% of your portfolio's value, you need a subsequent 100% return to get back to just the original value. Likely to happen with post-crash Fed stimulus, but no guarantee that you won't lose a ton of value to inflation by then. [b]Why is debt all of a sudden a problem now? What about 2013?[/b] Simple - from October 2012 till October 2014 - the time period you mention above, the Federal Reserve increased the size of the balance sheet from 2.8 trillion dollars to 4.5 trillion dollars during QE3. [img]https://www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/01-overflow/fed%20balance%20sheet%20vs%20es%20DB.jpg[/img] [b]Why isn't the impact of a worldwide slowdown similar to the one in 2015/2016?[/b] Again, in 2015/2016 there was massive monetary stimulus from the ECB and BOJ to prop up the markets. This is the only thing that propped up assets once the Fed reserve stopped QE. In 2015, the Fed raised rates by a measly 25 basis points and the markets still freaked out until they were saved by ECB/BOJ. [img]https://static.seekingalpha.com/uploads/2017/10/28/47769140-15092108444392734.jpg[/img] [b]Other thoughts[/b] I'm actually banking on a relief rally at least so that people can get their bearings and I can sell off the rest of my positions without taking too much of a loss. I forgot one point that I didn't mention earlier: 12) Yield curve inversion of the 2 and 5 year treasury bonds. 2 and 10 year spread is also extremely thin so could also invert in the near future. This is a very consistent recession indicator. Obviously no one knows what is going to happen, but (as an extreme example) anyone that bought into the market in July 2000 didn't recover their value until October 2015. Dividends made up some of the difference, but were canceled out by inflation. Peter Schiff has to be right eventually! [/QUOTE]
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