Tag Archives: seeking alpha

Playing The Bubble Game: Investing In The 21st Century

Summary: Investment commentary these days overflows with mentions of bubbles. The concept is vital to understanding our economy yet encrusted with myths in the minds of most investors. This post cuts through those to the known history and theory of bubbles. As usual with economics, this gives us clues about the future – but only clues.  {Second of two posts today.}

  • We’re in an era of bubbles, but they’re masked by myths.
  • Understanding their history and dynamics can guide our investing.
  • Bubbles create high risks not easily managed.
  • Failure to prepare for these risks has created serious losses, and will do so again.

Bubbles

Bubbles in history

“You Can’t Cheat An Honest Man.”
Title of W. C. Fields’ 1940 movie, harshly and cynically describing the essence of bubbles.

Bubbles are an inherent aspect of free market systems, easily produced in classroom exercises. Whether managing a nation or a portfolio, they must be understood.

Those who lived through the giant 19th century UK and US investment bubbles would find our bubbles quite familiar. Journalist and promoter Charles Mackay participated in several, and the scars from them led to his bitter polemic Extraordinary Popular Delusions and The Madness of Crowds. See more about this history in “Charles Mackay’s own extraordinary popular delusions and the Railway Mania” by the brilliant Andrew Odlyzko (Prof Mathematics, U MN).

Then and now, bubbles have common characteristics.…

Read the rest at Seeking Alpha. Post your comments there.

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Effects Of The Coming Market Crash On The Economy – And Perhaps On You

Summary: For the past year I’ve warned that the economy is slowing. For the past three months I’ve warned that a recession is coming. Now let’s consider the likely effects, and how you can prepare.

  • The odds of a stock market crash are high.
  • Are you at or near ground zero, to be hurt by the crash or its after-effects?
  • Will you be affected by its ripples — or the recession that probably causes the crash?
  • Here are the likely worst affected industries and regions. Prepare now if you’re in them, or if you are over-weight their stocks.

Stock Market Crash

A crash is coming soon. I believe (aka guess) it will happen in 2016, when stocks are knocked down by the combination of a recession, liquidation of margin debt, and collapse of valuations.

Valuations are a particular weak spot of stock. Now near record high levels, they are among the most mean-reverting of economic series on a generational basis (i.e., they collapse and then return to the average of the past 10 or 20 years). Stock prices might drop roughly by half, as they did after the last two bubbles popped.

What does a stock market decline do to the economy? Let’s count the ways.

Read the rest at Seeking Alpha. Post your comments there.

The Government Has A Clip Full Of Ammo To Fight The Next Recession

Summary: It’s time to prepare for a possible recession in 2016. The manufacturing slump continues to deepen. A toxic combo: high inventories in November and weak retail sales in December. In February this expansion will tie for the 3rd longest expansion. {2nd of 2 posts today.}

Bullets

The Atlanta Fed’s GDPnow model just lowered its est for Q4 real GDP from +0.8% to +0.6%. It is not better than carbon-based economists, but provides a different perspective. The *average* revision of real GDP is 1.2% from the advance announcement (coming Jan 20) to the final. The standard deviation is 1.0 — so a 2.4% revision is commonplace (roughly once every five years). Q4 real GDP could easily be red. We might already be in a recession.

Many people believe that the “government is out of bullets” to fight the next recession. We can take reassurance in the fact that they are wrong, and that the government has powerful tools to fight the next recession. We are not back in the horrific late 19th century, with its frequent and deep recessions — and no government counter-cyclical action.

See my latest report at Seeking Alpha: “The Government Has A Clip Full Of Bullets To Fight The Next Recession“, describing what actions we can expect to see. Post your comments there.

The Fed watches the jobs report. So should we.

Today the Bureau of Labor Statistics released the December jobs report, among the most important of the economic numbers. It is timely and describes one of the core engines of US growth. It tells us much about the US economy’s strength (growing or fading) and about wages — affecting inflation and interest rates, corporate profits and wage inequality.

Economy

Understanding these numbers requires a broader perspective than financial journalists use, so the emphasis of the major news reports tends to the almost meaningless “horse race” aspects: better than expected! — rather than strong or weak, faster or slower.

This report is important for us both as investors and citizens. To see what this report tells us go to my analysis at Seeking Alpha (post your comments there).

This is the second of two reports today. The first was Drugs and machines making people smarter & stronger: boon or bane?

How To Spot A 2016 Recession On The Horizon, And Prepare For It

Summary:  The recent decline in US stock prices reflects rising worries about a recession this year. Should you worry? What do economists expect? What indicators should you watch in the river of data flowing by every day? How can you prepare for a possible recession?

Economy

For answers to these questions see my first article at the Seeking Alpha.  Post your comments there!

“Unless you expect the unexpected you will never find truth, for it is hard to discover and hard to attain.”
— Heraclitus, the pre-Socratic “Weeping Philosopher” of Ionia.

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