Friday, August 17, 2012

Some Perspective on Rising Interest Rates

Click to enlarge.

If one believes that money will endlessly flow from bonds to stocks, then by all means chase the latest stock market rally.

Count me out. I chose to to permanently pass in the fall of 2004. If I was willing to watch the market rally without me then (which I was) it is just more of the same now.

It's been 8 full years since I turned permabearish. If this had been a healthy economy, then I would have missed out on some serious prosperity. As seen in the following chart, that's not exactly the kind of economy we have (or had) though.

Click to enlarge.

I can't say for sure when the next recession will hit, but I can say this. The evidence clearly shows that the Fed has not permanently stopped recessions from happening. They've been trying without success for 100 years. We've had 19 recessions under their watch. That's roughly 1 recession every 5 years. So here's a scary thought. In December, it will have been 5 years since the last recession began.

August 15, 2012
What to do if you're late to the U.S. stock rally

Not everyone is convinced that the stock market rally will hold up, of course.

Rick Weeks, a partner at HighTower Advisors in Vienna, Virginia, said that many of his clients "want to preserve their capital first," making them less interested in chasing rallies.

Here's a crazy thought. If one must own stocks then would it really be so bad to wait for the next recession and then buy them? How much longer can it be? Or are we really that impatient as a society?

To test the theory of a person's ability to delay gratification, the Stanford Marshmallow Experiment (1972), conducted by Prof. Walter Mischel, at Stanford University, California, studied a group of four-year-old children, each of whom was given one marshmallow, but promised two on condition that he or she wait twenty minutes before eating the first marshmallow. Some children were able to wait the twenty minutes, and some were not.

I am at the other end of the extreme. It is possible that I would still be collecting marshmallows if the test had continued. One million marshmallows? Yes!! Mwuhahaha!

3 per hour x 24 hours x 365.25 days x 40 years = 1,051,920

This is not investment advice.

Source Data:
St. Louis Fed: S&P 500 vs. 10-Year Treasury
St. Louis Fed: S&P 500


Stagflationary Mark said...

As a side note, the true nature of our economy would be exposed if all debts were payable in marshmallows.

That's assuming each marshmallow costs about a penny.

Mr Slippery said...

Sign me up for million marshmallow march on Washington DC.

Stagflationary Mark said...

Mr Slippery,

We Want S'More!

Stagflationary Mark said...

127 Marshmallow Rd Lavallette, NJ 08735

Price: $529,000
Size: 968 Sq Ft

128 Marshmallow Rd Lavallette, NJ 08735

Price: $599,900
Size: 1,217 Sq Ft

Buy one marshmallow at the regular low price and get a second marshmallow for that same low price plus a little bit more!*

* Just pay separate processing and handling.