What If The Fed Has It All Wrong?: I wrote an exclusive article for Seeking Alpha in which I expand on the following points:
Quantitative Easing-induced wealth effects may be wishful thinking;
Earnings are the primary drivers for equities and they have peaked;
QE3 could be highly counterproductive if commodity prices [...]
Tuesday, September 25, 2012
Tuesday, September 11, 2012
Tuesday, September 04, 2012
Who Do You Blame for the Woes of the Middle-Class?
Who Do You Blame for the Woes of the Middle-Class?: The Pew Research center ponders The Lost Decade of the Middle Class.
Median net worth is back to a level first seen in the 1980s. By that measure, the US has had three lost decades. Wow.
62% Blame Politicians, Only 8% Blame Themselves
Note that 62% blame politicians and 54% blame financial institutions, but only 8% blame themselves.
Five Questions
Two Bonus Questions
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Since 2000, the middle class has shrunk in size, fallen backward in income and wealth, and shed some—but by no means all—of its characteristic faith in the future.Three Lost Decades!
These stark assessments are based on findings from a new nationally representative Pew Research Center survey that includes 1,287 adults who describe themselves as middle class, supplemented by the Center’s analysis of data from the U.S. Census Bureau and Federal Reserve Board of Governors.
Median Income
Median Net Worth
Fully 85% of self-described middle-class adults say it is more difficult now than it was a decade ago for middle-class people to maintain their standard of living. Of those who feel this way, 62% say “a lot” of the blame lies with Congress, while 54% say the same about banks and financial institutions, 47% about large corporations, 44% about the Bush administration, 39% about foreign competition and 34% about the Obama administration. Just 8% blame the middle class itself a lot.
Who Is To Blame?
Median net worth is back to a level first seen in the 1980s. By that measure, the US has had three lost decades. Wow.
62% Blame Politicians, Only 8% Blame Themselves
Note that 62% blame politicians and 54% blame financial institutions, but only 8% blame themselves.
Five Questions
- Did banks force people to take out loans they could not pay back, or did people do so voluntarily?
- Who elects congress?
- Do people make enough effort to understand interest rates, debt, the economic policies of politicians, exponential math and its implications, the untenable nature of public union pension plans and promises?
- Do a significant number of people (if not the majority) get their economic views (assuming they have any economic views) from The View, Oprah, The Talk, or CNBC?
- Why did PEW leave off the Fed and Fractional Reserve Lending from the list of answers?
Two Bonus Questions
- Would the majority of respondents know anything at all about the Fed and Fractional Reserve lending had the PEW listed those options?
- Who is really to blame for what is happening?
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Saturday, September 01, 2012
Volatility Analogy
Volatility Analogy:
Today Heidi Moore interviewed me for NPR Marketplace. I won’t give away what it is about, but I will tell you two things:
Imagine you are driving down a well-engineered smooth road with gradual turns, modest traffic, and no bad weather, and you are going 60 miles per hour. This is easy. There is no volatility here. That is what an average retail investor hopes for, and rarely gets.
Now consider a road that is not so smooth, with significant and frequent curves, significant traffic, and now and then it is raining hard. That is a difficult situation. This is similar to what the market is normally like, with all of the volatility (high variation of results). Maybe you can’t do 60 MPH in that environment, but something less. Those who recognize risk must run at a slower speed or risk accidents.
Now think of someone without special skills who dares to drive the easy road at 100 MPH. He might not think it so hard, and might think he is quite a driver doing so. So it was for equity investors in the ’80s and ’90s; conditions were uniquely favorable, and average investors thought they were hot stuff.
Now think of someone without special skills attempting to do the hard conditions at 100 MPH on average. Odds are they wipe out, or even die. You can’t fight physics, or can you?
Okay, now think of a highly trained driver with a special car that is able to handle the hard conditions, and can do it at 100 MPH on average, most of the time. It doesn’t work all of the time, because there are things no one can catch — extra slipperiness, a bump in a particularly bad place that leads to an overturned car.
Finally, think of the trained driver with special car told he must average 150 MPH over the hard conditions course once. He dies on the first try, destroying the car. Several other trained drivers try with identical cars. They all die, and the cars are destroyed. Eventually, you can’t get anyone to try the hard conditions course at 150 MPH.
-=-=-=-==–=-=-==–=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
In my analogy, the difference between the hard and easy course is volatility: how rough/variable are conditions. Leverage is represented by speed. Any course can be completed, but there is a maximum speed for which a course can be completed without disaster. No surprise that those who are overly aggressive in investing frequently fail.
Now for the final tweak: imagine that you have no map for the hard course, it is new to you, no GPS, nothing to aid you in the driving. That is what the markets are like. As I often say, the markets always have a new way to make a fool out of you. How fast could you go? How fast could the trained driver with a special car go?
This is why I urge caution in investing and avoiding leverage. Investing is tough enough without trying to earn something beyond what the market can bear. I encourage safety first, after that, look for best advantage.
Today Heidi Moore interviewed me for NPR Marketplace. I won’t give away what it is about, but I will tell you two things:
- If I am on Marketplace, it will be on Friday or Tuesday.
- There was a point in the interview where she stumped me. I’m usually pretty able to think on my feet, but when she asked me “Volatilty: can you explain that in language that a teenager could understand?” I choked up, did my best on short notice, and gave what I later viewed as a lame explanation, but as I said it, my heart sank, because I realized I was not clarifying anything.
Imagine you are driving down a well-engineered smooth road with gradual turns, modest traffic, and no bad weather, and you are going 60 miles per hour. This is easy. There is no volatility here. That is what an average retail investor hopes for, and rarely gets.
Now consider a road that is not so smooth, with significant and frequent curves, significant traffic, and now and then it is raining hard. That is a difficult situation. This is similar to what the market is normally like, with all of the volatility (high variation of results). Maybe you can’t do 60 MPH in that environment, but something less. Those who recognize risk must run at a slower speed or risk accidents.
Now think of someone without special skills who dares to drive the easy road at 100 MPH. He might not think it so hard, and might think he is quite a driver doing so. So it was for equity investors in the ’80s and ’90s; conditions were uniquely favorable, and average investors thought they were hot stuff.
Now think of someone without special skills attempting to do the hard conditions at 100 MPH on average. Odds are they wipe out, or even die. You can’t fight physics, or can you?
Okay, now think of a highly trained driver with a special car that is able to handle the hard conditions, and can do it at 100 MPH on average, most of the time. It doesn’t work all of the time, because there are things no one can catch — extra slipperiness, a bump in a particularly bad place that leads to an overturned car.
Finally, think of the trained driver with special car told he must average 150 MPH over the hard conditions course once. He dies on the first try, destroying the car. Several other trained drivers try with identical cars. They all die, and the cars are destroyed. Eventually, you can’t get anyone to try the hard conditions course at 150 MPH.
-=-=-=-==–=-=-==–=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
In my analogy, the difference between the hard and easy course is volatility: how rough/variable are conditions. Leverage is represented by speed. Any course can be completed, but there is a maximum speed for which a course can be completed without disaster. No surprise that those who are overly aggressive in investing frequently fail.
Now for the final tweak: imagine that you have no map for the hard course, it is new to you, no GPS, nothing to aid you in the driving. That is what the markets are like. As I often say, the markets always have a new way to make a fool out of you. How fast could you go? How fast could the trained driver with a special car go?
This is why I urge caution in investing and avoiding leverage. Investing is tough enough without trying to earn something beyond what the market can bear. I encourage safety first, after that, look for best advantage.
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