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Honest question: is there any unavoidable reason why there cannot be a permanent bull market? I mean, apart from empirical/historical observation reasons (I don

Honest question: is there any unavoidable reason why there cannot be a permanent bull market? I mean, apart from empirical/historical observation reasons (I don't find those very compelling, as some stuff in economics seems to never happen until it happens). Given the low interest rates, people are growingly investing in diversified stocks to obtain profits in the long term. Index funds are growing, which don't even try to speculate to outperform the average, but just go with the flow. Taking that into account, could a slow and steady rise not just become a system equilibrium and go on an on?

alphydan 9y ago
> is there any unavoidable reason Unless the economy fully decouples from energy and matter [1], then Thermodynamics [2]. Solutions to this include Steady State Economy, reduction of population or the decoupling mentioned above (for example making our lives virtual) [1] https://jancovici.com/wp-content/uploads/2016/04/energie_graph9.jpg https://jancovici.com/wp-content/uploads/2016/04/energie_gra... [2] https://dothemath.ucsd.edu/2011/07/galactic-scale-energy/ https://dothemath.ucsd.edu/2011/07/galactic-scale-energy/ edit: Obviously my answer is meant long term, as in a couple hundred years.
deleted 9y ago
[deleted]
peatmoss 9y ago
Economy is tied to real consumption of finite resources. As we mine, fish, over harvest, burn, etc. our way out of some resources, we tend to find substitutes or other efficiencies to begin again. But... there is the question of whether our economic growth brings us closer to the absolute carrying capacity of spaceship Earth. So yeah, economic growth can’t continue forever without hitting some bio-physical constraints. But then maybe we’ll take to the stars. Or maybe we’ll crash hard and have exhausted the readily available and easily used resources, and be unable to sustain a large technological society.
- Liron 9y ago
  Ok but no previous recession would be explained by this answer.
  - peatmoss 9y ago
    We've never had ceaseless steady state growth as per the grandparent's question before either :-)
- fnovd 9y ago
  >But... there is the question of whether our economic growth brings us closer to the absolute carrying capacity of spaceship Earth. Are we inching up on the absolute carrying capacity of Earth? Perhaps. But what about the carrying capacity of the Sun? We are barely capturing a fraction of the energy the Sun sends our way. Think about what we could do if our ability to harvest renewable energy in the next two decades increased not tenfold or even a hundredfold, but a thousandfold. The smartphones in our pockets are almost unfathomably more powerful than those of a few decades ago, yet we still power them by burning rocks we found in the ground, eking out barely a day of usage before plugging them back into the grid. There is so much about our digital world that is limited by energy in ways we don't fully appreciate. Imagine a miniaturized particle accelerator [1] that could actually turn lead into gold [2]. Imagine this done at a scale powered by energy production several orders of magnitude greater than what we have today. Obviously, this is an implausible scenario, but the fact that it could even brush up against the possible makes me wonder. How would such a system affect the value of gold? Our perception of what gold is? How would such a system applied to any resource, design, good, or service fundamentally change the way we interact with our world? The digital revolution we have seen is something to behold, but perhaps it is only a stepping stone to something larger. [1] https://spectrum.ieee.org/nanoclast/semiconductors/devices/nanofabrication-enables-acceleratoronachip-technology https://spectrum.ieee.org/nanoclast/semiconductors/devices/n... [2] https://www.scientificamerican.com/article/fact-or-fiction-lead-can-be-turned-into-gold/ https://www.scientificamerican.com/article/fact-or-fiction-l...
  - mac01021 9y ago
aaavl2821 9y ago
Credit cycle is one reason. Low interest rates mean higher bond prices (this is an inherent attribute of debt pricing, look at pricing of high yield debt the last few years vs fed funds rate as an example), lower interest rates also lead to lower expected return / higher stock prices (CAPM), and higher interest rates lead to falls in those prices When interest rates are low and money is cheap, people take on more debt. Investors also invest in riskier assets because more money is available and competition for assets is greater. Eventually, default rates rise as there are more bad credits, and equity markets build up a lot of negative "potential energy" as prices rise based on increasing money supply. When interest rates rise, the reverse happens This is probably not exactly what you were looking for, but it's one reason why we have cycles
draw_down 9y ago
Ah yes, this time it’s different.
ThrustVectoring 9y ago
>Taking that into account, could a slow and steady rise not just become a system equilibrium and go on an on? There's positive feedback inherent in the system under control. Specifically, lower volatility makes it safer and more profitable to use leverage. This leverage will force people to overreact to negative market movement.
- OscarCunningham 9y ago
  Why do they have to overreact? They're smart. Often they're computers. Can't they just ... not?
  - ThrustVectoring 9y ago
    As the market falls, their portfolio value falls while the loan amount remains constant, increasing leverage. All levered positions must either sell into corrections or let their leverage increase to unacceptable levels. And at some point, the folks lending you money will have the right to call in the loans you took to buy securities. This automatic buy high / sell low effect is why people like using less leverage in more volatile markets. When volatility is high enough, it starts becoming advantageous to hold cash to buy the dip / sell the peak. The breakeven point between "more money in the market" and "volatility cleans out my position" can be calculated with the Kelley Criterion.
kylestlb 9y ago
The article actually mentions the index funds phenomenon; they become less diverse when 20 million people are buying into the same 'asset class' (index funds being an asset class). They consider it one of the potential warning signs.

alphydan 9y ago

> is there any unavoidable reason Unless the economy fully decouples from energy and matter [1], then Thermodynamics [2]. Solutions to this include Steady State Economy, reduction of population or the decoupling mentioned above (for example making our lives virtual) [1] https://jancovici.com/wp-content/uploads/2016/04/energie_graph9.jpg https://jancovici.com/wp-content/uploads/2016/04/energie_gra... [2] https://dothemath.ucsd.edu/2011/07/galactic-scale-energy/ https://dothemath.ucsd.edu/2011/07/galactic-scale-energy/ edit: Obviously my answer is meant long term, as in a couple hundred years.

deleted 9y ago

[deleted]

peatmoss 9y ago

Economy is tied to real consumption of finite resources. As we mine, fish, over harvest, burn, etc. our way out of some resources, we tend to find substitutes or other efficiencies to begin again. But... there is the question of whether our economic growth brings us closer to the absolute carrying capacity of spaceship Earth. So yeah, economic growth can’t continue forever without hitting some bio-physical constraints. But then maybe we’ll take to the stars. Or maybe we’ll crash hard and have exhausted the readily available and easily used resources, and be unable to sustain a large technological society.

Liron 9y ago
Ok but no previous recession would be explained by this answer.
- peatmoss 9y ago
  We've never had ceaseless steady state growth as per the grandparent's question before either :-)
fnovd 9y ago
>But... there is the question of whether our economic growth brings us closer to the absolute carrying capacity of spaceship Earth. Are we inching up on the absolute carrying capacity of Earth? Perhaps. But what about the carrying capacity of the Sun? We are barely capturing a fraction of the energy the Sun sends our way. Think about what we could do if our ability to harvest renewable energy in the next two decades increased not tenfold or even a hundredfold, but a thousandfold. The smartphones in our pockets are almost unfathomably more powerful than those of a few decades ago, yet we still power them by burning rocks we found in the ground, eking out barely a day of usage before plugging them back into the grid. There is so much about our digital world that is limited by energy in ways we don't fully appreciate. Imagine a miniaturized particle accelerator [1] that could actually turn lead into gold [2]. Imagine this done at a scale powered by energy production several orders of magnitude greater than what we have today. Obviously, this is an implausible scenario, but the fact that it could even brush up against the possible makes me wonder. How would such a system affect the value of gold? Our perception of what gold is? How would such a system applied to any resource, design, good, or service fundamentally change the way we interact with our world? The digital revolution we have seen is something to behold, but perhaps it is only a stepping stone to something larger. [1] https://spectrum.ieee.org/nanoclast/semiconductors/devices/nanofabrication-enables-acceleratoronachip-technology https://spectrum.ieee.org/nanoclast/semiconductors/devices/n... [2] https://www.scientificamerican.com/article/fact-or-fiction-lead-can-be-turned-into-gold/ https://www.scientificamerican.com/article/fact-or-fiction-l...
- mac01021 9y ago

aaavl2821 9y ago

Credit cycle is one reason. Low interest rates mean higher bond prices (this is an inherent attribute of debt pricing, look at pricing of high yield debt the last few years vs fed funds rate as an example), lower interest rates also lead to lower expected return / higher stock prices (CAPM), and higher interest rates lead to falls in those prices When interest rates are low and money is cheap, people take on more debt. Investors also invest in riskier assets because more money is available and competition for assets is greater. Eventually, default rates rise as there are more bad credits, and equity markets build up a lot of negative "potential energy" as prices rise based on increasing money supply. When interest rates rise, the reverse happens This is probably not exactly what you were looking for, but it's one reason why we have cycles

draw_down 9y ago

Ah yes, this time it’s different.

ThrustVectoring 9y ago

>Taking that into account, could a slow and steady rise not just become a system equilibrium and go on an on? There's positive feedback inherent in the system under control. Specifically, lower volatility makes it safer and more profitable to use leverage. This leverage will force people to overreact to negative market movement.

OscarCunningham 9y ago
Why do they have to overreact? They're smart. Often they're computers. Can't they just ... not?
- ThrustVectoring 9y ago
  As the market falls, their portfolio value falls while the loan amount remains constant, increasing leverage. All levered positions must either sell into corrections or let their leverage increase to unacceptable levels. And at some point, the folks lending you money will have the right to call in the loans you took to buy securities. This automatic buy high / sell low effect is why people like using less leverage in more volatile markets. When volatility is high enough, it starts becoming advantageous to hold cash to buy the dip / sell the peak. The breakeven point between "more money in the market" and "volatility cleans out my position" can be calculated with the Kelley Criterion.

kylestlb 9y ago

The article actually mentions the index funds phenomenon; they become less diverse when 20 million people are buying into the same 'asset class' (index funds being an asset class). They consider it one of the potential warning signs.