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Stock indexes over the long term are a function of Corporate profits of the large companies and the inflationary nature of the economy, especially over the last

by dpweb 6y ago

Stock indexes over the long term are a function of Corporate profits of the large companies and the inflationary nature of the economy, especially over the last 30 years, the willingness of the Federal reserve to print money (create debt). Without restraint nowadays. For instance, in 2020, the massive stimulus by the Fed almost certainly will create a rising stock market. It deviates of course in the short term 6-18 months, few years etc.. In short, if you go that route, buy on the 1-2 year dips. Invest would certainly be the way to go, although if you have a certain talent.. For instance, house flipping or starting a business. You can get better than the 5% or whatever you get after inflation in stocks. If you're really good at what you do, your odds of getting a better return go up.

throw0101a 6y ago
> the willingness of the Federal reserve to print money (create debt). Without restraint nowadays. Ben Felix, a portfolio manager at PWL Capital in Canada, just released a video explaining why this is completely wrong: * https://www.youtube.com/watch?v=K3lP3BhvnSo https://www.youtube.com/watch?v=K3lP3BhvnSo > Quantitative easing is a monetary policy whereby a central bank buys government bonds or other financial assets in order to inject money into the economy to expand economic activity. But what exactly does that mean? In today’s episode, Benjamin and Cameron are going to address this topic, avoiding highly politicized aspects, like whether or not central banks should be involved in the economy in the first place, and focusing purely on the operational perspective of quantitative easing – what is it, how it works, and what the intended transmission mechanisms are. * https://rationalreminder.ca/podcast/109 https://rationalreminder.ca/podcast/109 > For instance, house flipping or starting a business. You can get better than the 5% or whatever you get after inflation in stocks. If you're really good at what you do, your odds of getting a better return go up. That's nice if you want a different/second career or something. But there are those of us who are happy with our careers/jobs, and simply want something to do with our retirement savings… ain't nobody got time for that. Of course the half-life on any new business is quite abysmal, so I'm not crazy/ambitious enough to take on that kind of risk.
- hydroreadsstuff 6y ago
  He might mean debt monetization. When the Fed buys treasuries. I think the video didn't touch on that. M2 money supply changes nicely correlate with S&P500 performance. So there is truth to his statement. I'd also throw out the assumption that the Fed will reduce the balance sheet eventually. They tried and failed in 2019. It's not going to happen. They are in fact "spending" (through the Treasury and their bond-buying programs), even though Powell likes to say that the Fed doesn't have spending power, but has lending powers.
  - throw0101a 6y ago
    > They tried and failed in 2019. That's because COVID-19 happened. :) The Fed is buying up bonds: at some point they will mature and the US government will have to either (a) increases taxes to come up with the money to repay them (thus taking money out of circulation via the IRS), or (b) roll the debt forward by issuing new debt to pay the old debt. Given that a few years ago the UK rolled forward some debt from the South Sea Bubble, Napoleonic Wars, WW1, etc, rolling forward debt is not as big a deal as most people think: * https://www.theguardian.com/business/blog/2014/oct/31/paying-the-price-of-war-britain-makes-good-on-historic-debts https://www.theguardian.com/business/blog/2014/oct/31/paying... * https://www.nytimes.com/2014/12/28/world/that-debt-from-1720-britains-payment-is-coming.html https://www.nytimes.com/2014/12/28/world/that-debt-from-1720...
    - hydroreadsstuff 6y ago
      They lowered the rates for corona, but they expanded the balance sheet for that overnight lending rate spike before that.
  - imtringued 6y ago
    The balance sheet can only be reduced during times of inflation. I think everyone can agree that we are far away from that.
- Supermancho 6y ago
  > the willingness of the Federal reserve to print money (create debt). Without restraint nowadays > Quantitative easing is a monetary policy whereby a central bank buys government bonds or other financial assets in order to inject money into the economy to expand economic activity You implied this would be wrong, but it looks exactly right. Nobody is confused about how this works, which is why you response is just puzzling. > (b) roll the debt forward by issuing new debt to pay the old debt. There's no question as to what happens here (a) vs (b) false choice. It's printed money that is accounted for as new debt, as per the original assertion.

by dpweb 6y ago

throw0101a 6y ago

> the willingness of the Federal reserve to print money (create debt). Without restraint nowadays. Ben Felix, a portfolio manager at PWL Capital in Canada, just released a video explaining why this is completely wrong: * https://www.youtube.com/watch?v=K3lP3BhvnSo https://www.youtube.com/watch?v=K3lP3BhvnSo > Quantitative easing is a monetary policy whereby a central bank buys government bonds or other financial assets in order to inject money into the economy to expand economic activity. But what exactly does that mean? In today’s episode, Benjamin and Cameron are going to address this topic, avoiding highly politicized aspects, like whether or not central banks should be involved in the economy in the first place, and focusing purely on the operational perspective of quantitative easing – what is it, how it works, and what the intended transmission mechanisms are. * https://rationalreminder.ca/podcast/109 https://rationalreminder.ca/podcast/109 > For instance, house flipping or starting a business. You can get better than the 5% or whatever you get after inflation in stocks. If you're really good at what you do, your odds of getting a better return go up. That's nice if you want a different/second career or something. But there are those of us who are happy with our careers/jobs, and simply want something to do with our retirement savings… ain't nobody got time for that. Of course the half-life on any new business is quite abysmal, so I'm not crazy/ambitious enough to take on that kind of risk.

hydroreadsstuff 6y ago
He might mean debt monetization. When the Fed buys treasuries. I think the video didn't touch on that. M2 money supply changes nicely correlate with S&P500 performance. So there is truth to his statement. I'd also throw out the assumption that the Fed will reduce the balance sheet eventually. They tried and failed in 2019. It's not going to happen. They are in fact "spending" (through the Treasury and their bond-buying programs), even though Powell likes to say that the Fed doesn't have spending power, but has lending powers.
- throw0101a 6y ago
  > They tried and failed in 2019. That's because COVID-19 happened. :) The Fed is buying up bonds: at some point they will mature and the US government will have to either (a) increases taxes to come up with the money to repay them (thus taking money out of circulation via the IRS), or (b) roll the debt forward by issuing new debt to pay the old debt. Given that a few years ago the UK rolled forward some debt from the South Sea Bubble, Napoleonic Wars, WW1, etc, rolling forward debt is not as big a deal as most people think: * https://www.theguardian.com/business/blog/2014/oct/31/paying-the-price-of-war-britain-makes-good-on-historic-debts https://www.theguardian.com/business/blog/2014/oct/31/paying... * https://www.nytimes.com/2014/12/28/world/that-debt-from-1720-britains-payment-is-coming.html https://www.nytimes.com/2014/12/28/world/that-debt-from-1720...
  - hydroreadsstuff 6y ago
    They lowered the rates for corona, but they expanded the balance sheet for that overnight lending rate spike before that.
- imtringued 6y ago
  The balance sheet can only be reduced during times of inflation. I think everyone can agree that we are far away from that.
Supermancho 6y ago
> the willingness of the Federal reserve to print money (create debt). Without restraint nowadays > Quantitative easing is a monetary policy whereby a central bank buys government bonds or other financial assets in order to inject money into the economy to expand economic activity You implied this would be wrong, but it looks exactly right. Nobody is confused about how this works, which is why you response is just puzzling. > (b) roll the debt forward by issuing new debt to pay the old debt. There's no question as to what happens here (a) vs (b) false choice. It's printed money that is accounted for as new debt, as per the original assertion.