Effects of Fed policy
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Started by pj - Aug. 7, 2018, 4:52 p.m.

Fairly lengthy/comprehensive article on the effects of Fed policy on gold, financial and other markets https://tinyurl.com/y8ue9dje

Mostly bearish if the Fed stays on its stated track, which he thinks it will, until the effects of what it's doing force it to change course.

"...for the past nine years, household net worth or wealth, if you will, in the United States has been increasing eight times faster than output for GDP. There's a lot of things that I don't know or can't predict but one thing I know for certain is you can't keep increasing wealth eight times faster than output in any society forever."

By metmike - Aug. 7, 2018, 5:32 p.m.
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Thanks pj,

What you say makes sense. 

A huge part of that increase in net worth/wealth has been the 9 year bull market in stocks. People that own stocks have increased their net worth............alot in some cases.

Are these companies producing that much more to make them worth their increased stock value? Probably no in most cases. 

The stock market has more than doubled over that time frame. Are all those companies worth more than double? Are they producing double the output? No


By metmike - Aug. 7, 2018, 5:43 p.m.
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I wish we could go back to posts from the old forum but I discussed "the law of diminishing returns"............which applies in most realms.

The biggest benefits/profits/results are often experienced early on for something developed, used, sold ect....


There are tons of applications/exceptions but generally speaking, in many realms of production, you will reach something close to an optimal level..........after which, the extra effort going into it will yield less revenue/results than the same amount of effort/investment did previously.

Because of this, there are often limitations to growth in some fields.

By pj - Aug. 7, 2018, 6:44 p.m.
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Re: diminishing returns. If memory serves, it seems  that companies that become the most valuable in terms of market cap generally don't hold on to that position for very long. E.g., GM, IBM, AT&T, GE, Microsoft, Exxon Mobil etc Apple has now held that distinction for 6 years. Could that be a indication we're getting close to the end of a era?

By metmike - Aug. 7, 2018, 7:25 p.m.
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I don't know pj. Good question though.

We are in uncharted territory in so many realms of life right now that, even the experts can't predict the future with great skill.

A few years ago, who could have predicted that a reality show host would be president. or a few decades ago, that a black man would be president.

Or that 40+ years ago, when we were having a global cooling scare, that we would be having a global warming scare and be blaming a beneficial gas that's greening up the planet and increasing world food production by 25%.

The point of those examples is that humans are extremely unpredictable and can be greatly influenced by those who  have unique ideas that can be sold to the public, then are able to control/manipulate thoughts/behavior. 

This applies in politics, science, medicine and most fields. They usually offer authentic/useful stuff and the world buys it and is served by it. Almost always, when purchasing it with money, which really is what we were talking about(not climate change or Trump) the value is based on what it can provide...........how useful it is.

It seems to me, that the law of diminishing returns is kicking in here big time.

You and me can get everything on the internet now........many times more stuff than what we really need and much faster than what we need and on a device at home or a device that goes with us.

The improvements in the technology or products that have occurred from  2 decades ago(when there was just dial up and almost nobody had electronic devices) are numerous orders of magnitude greater than whatever improvements will occur over the next 2 decades.........law of diminishing returns. 

But who knows. Maybe they will invent a chip that gets implanted into your head and allows you access all this stuff or download it into your brains memory while you sleep.

By cfdr - Aug. 7, 2018, 8:06 p.m.
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Mostly bearish?  I'm not at all sure.  Don't we have a huge supply of USD's sloshing around?  But, what do they want to buy??  How much is wanting still to move into this country from elsewhere in the world?  If, here in this country, it wants to exit bonds, won't the equities see an inflow?  Gold, of course, has been pushed forever, it seems, but a long term chart sure doesn't look like it's ready for a move up.  Don't equities still look like the best bet?  I'd love to see a climax to the four year cycle low in the S&P, but it sure doesn't seem to want to accommodate me.  (g)  This year was the year for that four year low to occur, and so far it looks perfect.

I'm reminded of Hoover's words on international money flow in the 30s - like a loose cannon on the deck of a ship in a storm.  It could get wild.

By TimNew - Aug. 8, 2018, 5:27 a.m.
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Back in the 90's,  I ignored PE rates and it cost me in the late 90's/early 2000's and while I will never over simplify the market to the point of only looking at PE's,  from a value standpoint,  there is no single better measure. They are a little high for many companies,  but earnings are still accelerating.  IOW,   stock prices are not in "unrealistic" territory.

If you look at household wealth, it is largely split between equities and home values,   both of which took a major hit just about 9 years ago.  So, a major increase in that time frame would probably look a lot more balanced if you looked at 10-12 years.   Not sure I'd be too concerned about that.

I think we are on the cusp of some economic prosperity that requires fed intervention.  The days of 0 prime and fat balance had to end. 

By Lacey - Aug. 8, 2018, 9:49 a.m.
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It's a new ball game now.  The biggest market cap companies today are all communication companies who want the world to permit their growth unimpeded, think fangs. Even though it's becoming clear that they are for the most part extensions of our deep state and allowed to exist for the purpose of collecting data and info on preferences for the purpose of control.

By metmike - Aug. 8, 2018, 11:45 a.m.
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Excellent comments........thanks