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One doesn't need to be an economic historian to understand that the economy and market run in cycles. There is always an "inevitable correction" somewhere in t

by ddeck 10y ago

One doesn't need to be an economic historian to understand that the economy and market run in cycles. There is always an "inevitable correction" somewhere in the future, but in this endeavor, it's timing that matters. It’s probably not fair to pick on Icahn in particular, who is not really a perma-bear. There are far better examples (e.g. Marc Faber), who despite being demonstrably wrong year after year with their end of world predictions, are always welcome back on Bloomberg and CNBC explaining how the world markets are about to fall apart.

Retric 10y ago
If you actually look at economy's over long time periods they really don't have a cycle. It's much closer to a random walk than you might think. After the fact we simply define periods as good or bad based on what followed them. EX: People talk about Japan as if it was going though a bad time period vs. that just being the new normal based on it's demographics.
- aminorex 10y ago
  As someone paid to do such looking for the past decade I can assure you that both econometric and market series' are subject to periodic, as well as quasiperiodic, chaotic, and exogenous forcing functions. Everything looks like white noise when your eyes are closed.
  - Retric 10y ago
    If there where real periodic cycles you could predict if the US economy where Up or Down with above random odds for July 4th, 2050. Nobody can, because what you call periodic is something else. Another way of saying it is there where say a X year cycle to the economy it would be a very famous result. (Ignoring seasonal variation.)
  - return0 10y ago
    Even the Black-scholes models it as random motion.
  - csomar 10y ago
    > are subject to periodic, as well as quasiperiodic, chaotic, and exogenous forcing functions. Isn't that what random is?
cloakandswagger 10y ago
You're correct, the US economy has a reliable boom/bust cycle that is caused in large part by monetary policy and started in earnest under Greenspan's tenure at the Fed. That we're in the midst of one of the largest and most artificial of those 'boom' periods is undeniable, owing to the Fed's injection of $4.5 trillion into equity markets. Icahn is banking on Newton's third law of motion applying to financial markets as well.
- adventured 10y ago
  The Fed didn't inject $4.5 trillion into equity markets. That would be equivalent to claiming they own 24% of the S&P 500. They bought treasuries and junk mortgages to bail out home owners, the US Government and the big banks. Their tampering with equity markets so far has been limited and indirect via the banks.
  - cloakandswagger 10y ago
    Their monetary policy is responsible for inflating asset prices, so yes they did effectively inject that money into equity markets. No one thinks they went out and bought stock on the open market with it.
    - pmorici 10y ago
      Initially they weren't buying stock but it is pretty clear many central banks have been buying stocks in the last several years. It's a subject of some speculation if the Fed has joined the ranks of central banks who buy stocks directly. http://business.time.com/2013/04/26/why-are-central-banks-suddenly-buying-stocks/ http://business.time.com/2013/04/26/why-are-central-banks-su...
yborg 10y ago
Somebody has to take the other side in every trade. The market needs people that have the capital to lose consistently year after year...
- droffel 10y ago
  > The market needs people that have the capital to lose consistently year after year... Not necessarily true. The sellers miss out on gain, but they don't necessarily need to book a loss. Unrealized gains are not equivalent to losses. I believe what you're thinking about are derivatives (which are zero-sum, and for every unit of profit booked by one entity, there is a unit of loss booked by another entity). Equities are not zero-sum, the companies behind them produce very real value.

by ddeck 10y ago

Retric 10y ago

If you actually look at economy's over long time periods they really don't have a cycle. It's much closer to a random walk than you might think. After the fact we simply define periods as good or bad based on what followed them. EX: People talk about Japan as if it was going though a bad time period vs. that just being the new normal based on it's demographics.

aminorex 10y ago
As someone paid to do such looking for the past decade I can assure you that both econometric and market series' are subject to periodic, as well as quasiperiodic, chaotic, and exogenous forcing functions. Everything looks like white noise when your eyes are closed.
- Retric 10y ago
  If there where real periodic cycles you could predict if the US economy where Up or Down with above random odds for July 4th, 2050. Nobody can, because what you call periodic is something else. Another way of saying it is there where say a X year cycle to the economy it would be a very famous result. (Ignoring seasonal variation.)
- return0 10y ago
  Even the Black-scholes models it as random motion.
- csomar 10y ago
  > are subject to periodic, as well as quasiperiodic, chaotic, and exogenous forcing functions. Isn't that what random is?

cloakandswagger 10y ago

You're correct, the US economy has a reliable boom/bust cycle that is caused in large part by monetary policy and started in earnest under Greenspan's tenure at the Fed. That we're in the midst of one of the largest and most artificial of those 'boom' periods is undeniable, owing to the Fed's injection of $4.5 trillion into equity markets. Icahn is banking on Newton's third law of motion applying to financial markets as well.

adventured 10y ago
The Fed didn't inject $4.5 trillion into equity markets. That would be equivalent to claiming they own 24% of the S&P 500. They bought treasuries and junk mortgages to bail out home owners, the US Government and the big banks. Their tampering with equity markets so far has been limited and indirect via the banks.
- cloakandswagger 10y ago
  Their monetary policy is responsible for inflating asset prices, so yes they did effectively inject that money into equity markets. No one thinks they went out and bought stock on the open market with it.
  - pmorici 10y ago
    Initially they weren't buying stock but it is pretty clear many central banks have been buying stocks in the last several years. It's a subject of some speculation if the Fed has joined the ranks of central banks who buy stocks directly. http://business.time.com/2013/04/26/why-are-central-banks-suddenly-buying-stocks/ http://business.time.com/2013/04/26/why-are-central-banks-su...

yborg 10y ago

Somebody has to take the other side in every trade. The market needs people that have the capital to lose consistently year after year...

droffel 10y ago
> The market needs people that have the capital to lose consistently year after year... Not necessarily true. The sellers miss out on gain, but they don't necessarily need to book a loss. Unrealized gains are not equivalent to losses. I believe what you're thinking about are derivatives (which are zero-sum, and for every unit of profit booked by one entity, there is a unit of loss booked by another entity). Equities are not zero-sum, the companies behind them produce very real value.