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If and when the central bank finally sends the interest rates up the stratosphere, real estate and equipment prices will collapse to a fraction of its current v

by meric 11y ago

If and when the central bank finally sends the interest rates up the stratosphere, real estate and equipment prices will collapse to a fraction of its current value, which will make infrastructure like you mentioned possible.

ktRolster 11y ago
If and when the central bank finally sends the interest rates up the stratosphere Why do you think they will?
- meric 11y ago
  When they hit limits of monetary policy and stop digging into the hole they are in. Japan is the closest to such a limit. It has relentlessly pumped money into stocks and bonds and now all the JPY does is move up.
  - nitrogen 11y ago
    Assuming for the moment this is true, what does that imply for near- and mid-term planning purposes for the average software developer with bills to pay but also spare cash to invest?
    - meric 11y ago
      In the medium term - the prices of stock markets are driven by capital flows. Even the price of a money losing company is going to go up if the pension funds[1] are buying it. Central bank pulling liquidity out when they finally realise their monetary policy is only making the inevitable worse, will mean a lot less money to flow into various investments. Therefore, avoid investments that have gone up in the past few years, that went up because of monetary policy (e.g. direct central bank buying, lowering of reserve ratios, lowering of interest rates). Avoid government bonds, avoid municipal bonds, avoid companies that have leveraged up for stock buybacks, ruling out S&P 500. Avoid companies whose stock prices are fueled by margin loans (e.g. tech unicorns). Avoid energy companies that have been limping along because they keep borrowing at low rates. Avoid companies with debt. In January 2016, the only sector that fulfilled all of these requirements were the junior gold miners - the collapse of gold prices since 2011 has wiped out all but the strongest gold mining companies. They have little debt, high margins, lots of cash and very profitable compared to their share prices. The junior gold mining stock index GDXJ[2] has went up 111% in 3 months. Of course, now that they're going up, margin loaning investors are piling in, and it's no longer as safe as a rock as it was in January 2016. I'd wait and see if GDXJ corrects back to the mid 20's, and then I'd buy more. (I have 130% of my portfolio in gold miners at the moment, so I'm biased.) The next sector to look for is overseas iron ore and oil producers. When finally the collapse of iron ore & oil prices has wiped out all the highly indebted and poorly performing companies, you will see the strongest of the bunch go on fire sale shopping spree. Those will be good buys. I think it will happen in 12-24 months. I think we're currently still in the clean up phase at the moment - lots of dead man walking companies hanging on desperately. The Chinese stimulus plan that lit a fire on iron ore prices in the past 2 months is going to prolong this phase for a while yet. [1] Pension funds are big. [2] https://au.finance.yahoo.com/q/bc?s=GDXJ&t=1y https://au.finance.yahoo.com/q/bc?s=GDXJ&t=1y
      - SixSigma 11y ago
        > when they finally realise their monetary policy is only making the inevitable worse How come you realise it and those in charge of the policy are ignorant of the fact ?
        meric 11y ago
        The Federal Reserve is very well aware[2], cyclical movements in the economy promotes the creative destruction required to grow the economy in the long run. At the same time, it's mandate given by the Congress is to minimise cyclical movements in the economy, through maintaining price stability, maximising employment, and moderating long-term interest rates. Regular periods of price volatility, temporary, massive fall in employment, and sharp interest rate volatility are required for releasing ineffectively used capital and labor in the economy, to be hoovered up by stronger businesses. But the Federal Reserve's mission isn't to promote creative destruction for long term economic growth. It's mission is to maintain economic stability, even if it is anaemia to long term economic growth. In fact, it's mandate doesn't even mention economic growth or productivity. Why do politicians create a Federal Reserve to do this, and to let it keep this mandate for the past hundred years? Why does President Obama want Federal Reserve to maintain economic stability, even as it corrodes American economy, month by month, year by year? It's election year, and President Obama wants to convince the world the American economy is doing great. Reject pessimism, cynicism and know that progress is possible. Progress is not inevitable, it requires struggle, discipline and faith.[1] [1] http://www.theguardian.com/us-news/2016/apr/23/barack-obama-london-visit-young-people-key-to-changing-the-world http://www.theguardian.com/us-news/2016/apr/23/barack-obama-... [2] https://www.chicagofed.org/publications/economic-perspectives/2004/2qtr-2004-part-4 https://www.chicagofed.org/publications/economic-perspective... Because a firm’s failure frees the labor and capital it employed for use at a more profitable entrant, this process may be described as creative destruction. Although there are costs associated with creative destruction, such as the lost labor of temporarily unemployed workers, it benefits an economy in the long run by moving productive resources into more profitable uses. http://www.federalreserve.gov/pubs/feds/2006/200623/200623pap.pdf http://www.federalreserve.gov/pubs/feds/2006/200623/200623pa... Explaining Cyclical Movements in Employment: Creative Destruction or Changes in Utilization https://www.federalreserve.gov/faqs/money_12848.htm https://www.federalreserve.gov/faqs/money_12848.htm The Congress established the statutory objectives for monetary policy--maximum employment, stable prices, and moderate long-term interest rates--in the Federal Reserve Act. The Federal Open Market Committee (FOMC) is firmly committed to fulfilling this statutory mandate.

by meric 11y ago

ktRolster 11y ago

If and when the central bank finally sends the interest rates up the stratosphere Why do you think they will?

meric 11y ago
When they hit limits of monetary policy and stop digging into the hole they are in. Japan is the closest to such a limit. It has relentlessly pumped money into stocks and bonds and now all the JPY does is move up.
- nitrogen 11y ago
  Assuming for the moment this is true, what does that imply for near- and mid-term planning purposes for the average software developer with bills to pay but also spare cash to invest?
  - meric 11y ago
    In the medium term - the prices of stock markets are driven by capital flows. Even the price of a money losing company is going to go up if the pension funds[1] are buying it. Central bank pulling liquidity out when they finally realise their monetary policy is only making the inevitable worse, will mean a lot less money to flow into various investments. Therefore, avoid investments that have gone up in the past few years, that went up because of monetary policy (e.g. direct central bank buying, lowering of reserve ratios, lowering of interest rates). Avoid government bonds, avoid municipal bonds, avoid companies that have leveraged up for stock buybacks, ruling out S&P 500. Avoid companies whose stock prices are fueled by margin loans (e.g. tech unicorns). Avoid energy companies that have been limping along because they keep borrowing at low rates. Avoid companies with debt. In January 2016, the only sector that fulfilled all of these requirements were the junior gold miners - the collapse of gold prices since 2011 has wiped out all but the strongest gold mining companies. They have little debt, high margins, lots of cash and very profitable compared to their share prices. The junior gold mining stock index GDXJ[2] has went up 111% in 3 months. Of course, now that they're going up, margin loaning investors are piling in, and it's no longer as safe as a rock as it was in January 2016. I'd wait and see if GDXJ corrects back to the mid 20's, and then I'd buy more. (I have 130% of my portfolio in gold miners at the moment, so I'm biased.) The next sector to look for is overseas iron ore and oil producers. When finally the collapse of iron ore & oil prices has wiped out all the highly indebted and poorly performing companies, you will see the strongest of the bunch go on fire sale shopping spree. Those will be good buys. I think it will happen in 12-24 months. I think we're currently still in the clean up phase at the moment - lots of dead man walking companies hanging on desperately. The Chinese stimulus plan that lit a fire on iron ore prices in the past 2 months is going to prolong this phase for a while yet. [1] Pension funds are big. [2] https://au.finance.yahoo.com/q/bc?s=GDXJ&t=1y https://au.finance.yahoo.com/q/bc?s=GDXJ&t=1y
    - SixSigma 11y ago
      > when they finally realise their monetary policy is only making the inevitable worse How come you realise it and those in charge of the policy are ignorant of the fact ?
      - meric 11y ago
        The Federal Reserve is very well aware[2], cyclical movements in the economy promotes the creative destruction required to grow the economy in the long run. At the same time, it's mandate given by the Congress is to minimise cyclical movements in the economy, through maintaining price stability, maximising employment, and moderating long-term interest rates. Regular periods of price volatility, temporary, massive fall in employment, and sharp interest rate volatility are required for releasing ineffectively used capital and labor in the economy, to be hoovered up by stronger businesses. But the Federal Reserve's mission isn't to promote creative destruction for long term economic growth. It's mission is to maintain economic stability, even if it is anaemia to long term economic growth. In fact, it's mandate doesn't even mention economic growth or productivity. Why do politicians create a Federal Reserve to do this, and to let it keep this mandate for the past hundred years? Why does President Obama want Federal Reserve to maintain economic stability, even as it corrodes American economy, month by month, year by year? It's election year, and President Obama wants to convince the world the American economy is doing great. Reject pessimism, cynicism and know that progress is possible. Progress is not inevitable, it requires struggle, discipline and faith.[1] [1] http://www.theguardian.com/us-news/2016/apr/23/barack-obama-london-visit-young-people-key-to-changing-the-world http://www.theguardian.com/us-news/2016/apr/23/barack-obama-... [2] https://www.chicagofed.org/publications/economic-perspectives/2004/2qtr-2004-part-4 https://www.chicagofed.org/publications/economic-perspective... Because a firm’s failure frees the labor and capital it employed for use at a more profitable entrant, this process may be described as creative destruction. Although there are costs associated with creative destruction, such as the lost labor of temporarily unemployed workers, it benefits an economy in the long run by moving productive resources into more profitable uses. http://www.federalreserve.gov/pubs/feds/2006/200623/200623pap.pdf http://www.federalreserve.gov/pubs/feds/2006/200623/200623pa... Explaining Cyclical Movements in Employment: Creative Destruction or Changes in Utilization https://www.federalreserve.gov/faqs/money_12848.htm https://www.federalreserve.gov/faqs/money_12848.htm The Congress established the statutory objectives for monetary policy--maximum employment, stable prices, and moderate long-term interest rates--in the Federal Reserve Act. The Federal Open Market Committee (FOMC) is firmly committed to fulfilling this statutory mandate.