Every retail investor today makes the same exact mistake. They read articles like this and then they go look at a historical chart of the market. They see a massive run up to present day...with the wild fluctuations for 2000 and 2007 magnified due to the exponential data. Psychologically, they think <i>this must be the pattern of the market, we are obviously due for a fall.</i><p>Then, one day years later, after they've lost out on ridiculous gains waiting for the "big drop," they learn that when looking at a historical market chart to switch from <i>linear</i> to <i>logarithmic</i> scale.<p>Suddenly the crazy recent capitulations just look part of a steady climb with minuscule blips along the way. Go ahead and try it on Google Finance with the S&P. You'll be amazed.<p><i>edit</i> Changed 'exponential' to avoid confusion
Every decade since the 1960s, Real (ie. non-financial) US GDP growth has slowed ( <a href="https://fred.stlouisfed.org/series/A191RL1Q225SBEA" rel="nofollow">https://fred.stlouisfed.org/series/A191RL1Q225SBEA</a> ).<p>Industrial capacity utilization has been shrinking since the early 1970s. In the early 1970s, 88% of invested capital was utilized in production. Today that's less than 76%. So about a quarter of invested capital is sitting idle currently. ( <a href="https://fraser.stlouisfed.org/scribd/?toc_id=296052&filepath=/files/docs/publications/ERP/2012/2012_erp.pdf&start_page=378" rel="nofollow">https://fraser.stlouisfed.org/scribd/?toc_id=296052&filepath...</a> ) ( <a href="https://www.federalreserve.gov/releases/g17/revisions/Current/table1b_rev.htm" rel="nofollow">https://www.federalreserve.gov/releases/g17/revisions/Curren...</a> )<p>Also in the US we've seen since the 1960s increasing debt percentage across households, corporations and governments, lower wages against different backdrops, and decreased capital re-investment as a percentage of GDP.
Alan Watts talks about how some things in life can be like trying to smooth the waves in the ocean with a flat iron.<p>I often think of that when it comes to the Fed. I know next to nothing compared to the financial wizards, but it does seem like every major financial crisis started with some marginal movement by the Fed.<p>I'm not saying there's a better alternative, or necessarily knocking them - I have respect for them. But at times it seems like nobody really knows how the economy works, and each crisis is followed by an, "oops, let's not do that again."
Sometimes I wonder if we're looking at another 1929 event.<p>Lets posit 1929 - in 1929 by most accounts the economy was booming, drive by easy credit and new inventions, a new consumer oriented society was driving buying on credit and speculation in the stock market. But the economy at its core was weak, specifically in the agricultural sector.<p>Lets Posit today - Uneven recovery from last economic crisis, most of the economy has weak growth, boom of growth in certain markets, weak agricultural commodity pricing.<p>I see parallels, enough parallels to be concerned really, but not enough to go hide in a hole until its all better. I'm concerned the current administration may not respond full-throatedly enough in the event of a real crisis however.
I'm not well verse in economy but I believe much of what US is today is built on being the global dependency. It's like the JQuery of everyone's economy: too big to fail.<p>After Trump inarguration, the world got a shock at what a hell of a dependency they got themselves into (bigger shock than 2008). It's like the leftpad fiasco all over again. Any sane politician would by now understand the need to reduce dependency on America. Everyone else are planning a Dodd Frank fix for their economy.<p>US will really suffer a crisis if the world stop depending on it, if they can afford to ignore America. After TPP was canned, and Trump protectionism approach, that dependency is surely weaken.<p>If you think about it, China is not even trying to complain about US anymore. That's because they got what they wanted.<p>But US had a nuclear arsenal, its better for the world if we had this dependency. Trade and economy have kept peace for so long, I hope I don't see an end to this peace.
In my gut, I feel like the same mindset that caused 2000 and 2007 has come together into one that will cause a bubble greater than both. Why do I think that?<p>1.) After watching 'Big Short', it made me realize that a lot of what causes a bubble is no one asking difficult questions because nobody wants to be 'that guy' who ruins the party.
2.) If Facebook, Uber, or the Pepsi ad is any indication, there are a lot of talented 'yes men' going along with business-as-usual because of self-interest.
3.) Snap is more alarming to me than Tesla. Tesla succeeding with their long-term vision is a much safer bet than Snap is. I know a 'social media influencer' and he recently told me that a lot of his network is leaving Snap for 'more stable platforms with broader demographics'.
4.) The recovery will be very different from the last 2 because AI, robots, and other forms of disruption will swallow up thousands, if not millions, of jobs. Why would executives and shareholders decrease margins for PR? Uber was affected a little by their recent issues but they are already 'back on track' it seems.<p>All in all, I am 27 and graduated high school when 2007 happened. I was 10 when the 2000 happened. This is the only world I know, one that works in 8 year cycles. 1992 Bill Clinton was elected with 'it's the economy, stupid'.<p>We are in for quite a ride because fanaticism, corruption, and climate change are all showing up in unexpected ways too. It will all be okay though, suffering builds character.
I don't really know what to do with this news... I mean... do I cancel my 401k, do I sell my house, do I dig a bunker? Recessions come and go, right? What can you do to prepare for the future except keep your debts cleared, keep a certain amount of cash on hand (I like about 6 month's worth), invest the rest as wisely as you can... and y'know... cross your fingers.<p>There will be ups and downs. Life is long. And this is a depressing topic. (=
Maybe I don't have a full understanding- but economywide, the amount of debt and savings has to be equal, right?<p>So if the debt of these large companies has increased, who is doing the extra savings (and loaning the money to these companies)?<p>And if interest rates double, we will likely see these companies unwind some of their debt positions. What will be the effects of that?
The Shiller PE has been higher than it is today exactly twice, in 1929 and in 1999:<p><a href="http://www.multpl.com/shiller-pe/" rel="nofollow">http://www.multpl.com/shiller-pe/</a><p>However, in 1999 it went <i>much</i> higher, so I'm not sure I'd be loading up on those shorts.