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Gongol.com: December 25, 2012
Fear and panic have chased people out of the stock market for no sensible reason. - Gongol.com
Don't get me wrong. I enjoy reading what Brian Gongol has to say. I visit his website often. The "no sensible reason" argument is a bit difficult to stomach though. Not one sensible reason? Not one? Seriously? I'll certainly give it a shot. Let's talk about Japan.
In hindsight, Japan's investors certainly haven't felt that their stock market was risk free even over the long-term. Note what's happened to their stock market since the early 1990s. That's when their housing bubble popped. They've replaced much of that prosperity with excess government debt. Sound familiar? How did that work out for them so far? How will it work out for them in the future?
The President plans to appoint the co-chief investment officer of Pimco to chair a global development council. Pimco isn't exactly a sunshine-and-lollipops kind of operation. They're the ones who talk about "the new normal", which looks to a future of low returns and high levels of regulation. - Gongol.com
I became a permabear in 2004. I was and am a strong believer the "new normal" theory. The 5 Charts I Shared with My Tax Preparer sum up my reasoning. The old normal's math is absolutely unsustainable. Exponential growth is *always* doomed to failure (think the end stages of a locust swarm). That's just basic math.
In my opinion, those who think we're going to rocket back to the old normal exponential growth curve (as seen in the red trend line of the chart above) are going to find themselves in a world of ignorant pain. I would bet every last penny of my nest egg that it is not going to happen.
Keep in mind that I'm generally not known for taking excessive risks. I would definitely make the bet though. I wouldn't even need favorable odds. Bet it all to win 10%? Absolutely. There will be no economic rocket. There will be no satellite of economic love. Mere words cannot adequately express how strong my opinion is on this. The party ended in 2000. All we can do now is adapt to the new reality. Sigh.
Source Data:
St. Louis Fed: Real DJIA (November 2012 Dollars)
12 comments:
I find two things very interesting in the chart.
June 1982 was the month I graduated high school. That was the low point in the exponential trend within the chart.
December 1999 was the peak in the chart. The party really did end in 2000.
I consider myself to be very fortunate to have been born when and where I was. It isn't just the economy. Unlike many throughout history, I was never even forced to serve active duty in a war. I am grateful and thankful to those who have.
"Children need encouragement. If a kid gets an answer right, tell him it was a lucky guess. That way he develops a good, lucky feeling." - Jack Handey
Jack Handey's the best. That said, I don't have a "good, lucky feeling" about what's coming next in this economy. Luck cannot repair broken exponential trends of this magnitude.
Graduated same year, and also consider myself quite fortunate.
That said, the future's looking to be much more, say, "interesting".
Larry Kudlow: "Dow 45000!"
Stagflationary Mark: "Dow 450!"
The difference is two zero's:
1.) Greenspan,
2.) Bernanke.
That about sum it up?
TJandTheBear,
Graduated same year, and also consider myself quite fortunate.
Old enough to know things aren't quite right. Young enough to care!
The nest egg has to last at least another 30 years more than likely, possibly a lot longer.
"Grandpa is positive and optimistic," she said.
Who am I kidding? I'm not going to live to 115 years of age in this economy, lol. Sigh.
Fritz_O,
That about sum it up?
I could buy a Dow 4500 argument if the fan and the you know what really meet up.
The analogy still holds though. Dow 4500 has two zero's in it. ;)
Years from now I'm picturing a mad scientist. He's in his lab. It's during a lightning storm. He's just installed a new "abnormal" brain into his creation.
Greenankenstein!
“When falsehood can look so like the truth, who can assure themselves of certain happiness?” ― Mary Shelley, Frankenstein
Gongol. n. A 1 followed by 100 zeroes sensible reasons to get out of the stock market.
Greenankenstein!
In the present I'm picturing A Zombie Hellbent On Destroying The Economy.
Night of the Living Fed!
As you well know, historically the stock market bottoms around 6x earnings... well down from over 20x at present. Also... just for you, Mark... bottoms are characterized by the DOW and Gold at near parity.
I can easily see both meeting at 4500 or below.
Mr Slippery,
November 29, 2007
CNNMoney: Fraidy cat wants out of this stock market
Even today, when the mood about stock prices is so negative, it's hardly a given that the market is about to plummet. Indeed, stock prices are hardly overvalued.
...
Who knows, maybe you did call it exactly right in 2000. But just because you bucked the odds once, that's no reason to take a chance with your retirement stash again.
Fritz_O,
From your link...
Long-term data suggests that higher debt levels are not correlated with higher GDP growth rates.
Shocking! ;)
TJandTheBear,
I can easily see both meeting at 4500 or below.
I wouldn't rule it out. That said, if history is a guide then gold would be at the very peak of a serious bubble at that point.
As you know, I exited my gold position long ago. No desire to reenter it. Picked the low lying fruit. Sold it to others. Right or wrong, I'm done.
That said, if history is a guide then gold would be at the very peak of a serious bubble at that point.
I'd have traded one for the other before it even got that close... assuming the stock market is even functioning by then. [How's that for doom?]
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