Stock Market Thread
- Thread starter PsychicOtter
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PsychicOtter
Otter Missionary
It's done very well recently, but it's always a gamble.
Ricky
Well-Known Member
Uuh... You're kidding right? The stock market has just recently hit its all-time high of 14,000 we had before 2008 (looking at the Dow) and has been teetering around there all year. I would hardly say it's remained stable let alone *increase.*
PsychicOtter
Otter Missionary
Well since it hit its all-time high, I would classify that as doing well in the recent months/year...I never said it was stable, but if it's hitting record highs, how is that not doing well? The Dow's up 9% in the last year, the S&P is up 15%, and NASDAQ is up 10%.
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ADF
Member
The Dow has "recovered" to pre-crash levels, but pre-crash levels of 2008. Look at what has happened since then.
We've had the bank bailout and stimulus measures where the dollar supply was increased by multiples, some of which will have inevitably entered general circulation and not stayed on banks balance sheets. We've had years of quantitative easing measures pumping even more money into the system. We've had government debt monetisation of over 50% in the US, so the government is funding spending by simply creating the money; and that is entering circulation.
All of which are inflationary factors. The Dow may have returned to pre-crash levels, but the dollar isn't at pre-crash levels, it's at Dow 14,000 with a weaker dollar.
Inflation must always be factored when considering stock market gains. It's a good idea to measure stocks against a basket of goods, otherwise that big boost in value someone thought they gained; may in fact be cancelled out by the rising cost of living. Inflation can make stock values appear to go up, like commodity prices, while in reality they're standing still in terms of what they can buy when converted into currency.
Remember it isn't necessarily gold, wheat, oil, wool etc. going up in value; it can be the currency going down in value. If the price of EVERYTHING is going up year after year, it's a good indicator that inflation is to blame.
Ricky
Well-Known Member
Inflation. Once you account for it you realize it hasn't actually gone "up."
You need to look at a timeframe longer than a few months to realistically determine how a market is doing.
It hasn't done so well over the latter last decade or so, but if you look from the 80's and 90's it's gone WAY up.
That's why I think it's saturated. "Investing" has become almost synonymous with "buying stocks."
ADF
Member
Let's put it this way. Look at what happens to the Dow when measured in something like gold, instead of dollars.
http://pricedingold.com/dow-jones-industrials/
http://pricedingold.com/charts/DIA-2002.pdf
It would be interesting if there were charts around measuring it against other commodities as well. I'd suspect you'd get similar results if you measured it again food or energy.
http://pricedingold.com/dow-jones-industrials/
http://pricedingold.com/charts/DIA-2002.pdf
It would be interesting if there were charts around measuring it against other commodities as well. I'd suspect you'd get similar results if you measured it again food or energy.
PsychicOtter
Otter Missionary
I agree it hasn't done well over the last 5 years and that sometimes you need to look at a long span of time, but that's not what I was talking about. I was simply referring to the last year, in which the markets have been WAY above the inflation rate.
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ADF
Member
Assuming you believe the inflation rate
Not to go on, but the US keeps changing their measurement of inflation and it's always to bring it lower. In fact I remember hearing somewhere that they're claiming inflation is overstated and they want to bring in a new lower calculation...Independent measurements of inflation are often much higher than the governments figures.
PsychicOtter
Otter Missionary
Good point, but I doubt the inflation rates (even if under-reported) have much that growing rate of the Dow and S&P over the last year.Assuming you believe the inflation rate
Independent measurements of inflation are often much higher than the governments figures.
Ricky
Well-Known Member
That won't necessarily work; gold is saturated too.
Most of gold is owned by investors now, especially after gold ETF's came out.
A lot of people think it's a bubble.
The stock market hasn't been steadily growing over the last year and has been volatile as hell.
Just look at the chart. It reached it's LOWEST point back in November if we are talking about performance over a year.
-edit- I just realized if you go back almost exactly a year you see a point around June 2012 where it was a bit lower. It still doesn't really change what I said. It has been anything but "steadily growing."
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ADF
Member
You get these financial shows of so called experts banging on about gold being a bubble, and these are the people who got it wrong when they ignored gold in the early naughties. Who owns it? I mean, really owns it? If it's a bubble, it's the first bubble where people are lining up to sell it at 40% its value to cash4gold companies... It must be the least owned bubble asset in history. In the 1980s gold mania there were lines coming out of gold bullion sellers, I don't see any of that.
ETFs are also highly leveraged, they have nowhere near as much gold on deposit as they have "sold" in paper contracts. I remember hearing some ridiculous figure, like 100 claims on each ounce of gold on deposit. It would be very easy for a run on the COMEX to occur, they just need a small amount of people with gold ETFs to demand delivery and not accept dollar pay outs with big premiums to deter physical delivery. Speculators and investors are going to wake up one day to find there isn't as much physical gold to go around as they originally thought, because leveraged contracts are allowed to be counted as supply.
Their sole argument that gold is in a bubble is that the price keeps going up over the past decade. In that case, everything is a bubble, because all the other commodities have been going up the past decade as well. Never mind we've just come from a credit bubble, and credit is inflationary, plus there is a currency war going on driving currencies even lower.
The gold "bubble" will end the day governments stick interest rates up to healthy levels and stop flooding the economy with new currency, which isn't any time soon.
PsychicOtter
Otter Missionary
Another misquote. I never mentioned the term "steady growth." Yes it's been volatile but ALL I SAID is that OVERALL it has had a good year. Any time the Dow goes up 10% (inflation rates were reported at 3%) it is considered a good year. It's always a gamble, it's always risky, but the market has been successful over the last year. I know it's not that simple, but that's all I was talking about. I'm basically looking at this year in a vacuum and not comparing it to stronger, per-recession levels.
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Ricky
Well-Known Member
It has gone up but it has also gone down. For all we know, something stupid will happen and it will go back down even more. Maybe not, but you can't look at point A and point B, see that it has gone up overall and say it has been good -or- bad within that period time, especially when a market is volatile.
If I had to make a prediction, I think it will eventually go up a bit more but it has to hit a ceiling where it's not going up any more than the rate of inflation. This is assuming there aren't a ton of new investors and huge public companies don't just keep growing and multiplying. You're already seeing a lot companies going private. If people end up seeing the stock market isn't the panacea for investing after all, chances are people will take their money elsewhere, where they will get a better return. This might cause a decline. Who knows?
PsychicOtter
Otter Missionary
Fair enough.
ADF
Member
Gold is a very inflation sensitive asset. It's not a coincidence that this gold "bubble" just happened to start in 2001, when they slashed interest rates in an effort to avoid a recession from the NASDAQ Dot-Com bubble bursting. Lower interest rates, higher central bank credit demand, higher inflation. Gold prices hasn't been flying up year after year, it has been a gradual rise over a long period.
This is what a bubble chart looks like, where is the mad rush into gold?
Something adjusting for inflation over a long period =/= bubble. It will turn into a bubble at some point in the future, when the public take note and run in thinking they can make an easy buck like with housing pre 2008, but it's not there yet.
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ADF
Member
I'll go over it again, this time in more detail to hopefully get across what I mean. But remember the topic is the stock market, not gold, so let's not go on about this more than necessary.
Gold is regarded as the currency of last resort because it has survived 6000+ years of being a monetary metal and never failed, it has always come out on top in natural selection amongst currencies. That isn't an opinion or ideology, that's just the way things have gone in history. But modern economies prefer fiat currencies due to their flexibility in monetary policy. Gold is the exact opposite of flexibility in terms of monetary policy, but it's very secure, you'd be hard pressed to find a country on this planet where gold is not accepted as valuable.
As a competitor to all paper currencies, gold is very sensitive to price movements in the value of a currency. To the point that even fear of future devaluation can be reflected in the gold price, as people seeking safe (risk free) protection for their money will buy gold in anticipation of future devaluation. So gold doesn't just adjust for past/present inflation, but the fear of future inflation as well. Keep that in mind, when you consider that the dollar supply has been more than tripled as a response to the economic crisis. This is just since 2011, the dollar has seen QE3 since then, where the Federal Reserve are creating 10s of billions of new money every month until the US economy has "recovered". How they will interpret that is anyone's guess; as some would argue the QE, bailouts and enforcing 'too big to fail' are preventing a recovery.
Of course to cause inflation those new dollars have to enter circulation and compete for the available supply of goods and services. We don't know how much has reached circulation and how much is still sat on banks balance sheets. There is also the threat of fractional reserve banking, where this money can be magnified many fold when it is lent out. But enough has entered circulation were commodity prices are booming, causing food riots in countries sensitive to price changes such as China and India.
But we don't need to know how much has entered circulation. The fact of the matter is, the supply of dollars has increased astronomically and is continuing to do so, nothing like this has happened in the dollars history. That threat of future inflation is all that is needed for people to run to gold as a safe haven, never mind everything else that is going on creating fear; such as the currency war the G20 is only just starting to talk about. Not just paper speculators but central banks are buying gold for the first time in decades, including the Federal Reserve. China are buying record quantities of gold, Russia are at it and many Western countries are also at it; but being quiet about that. We know Germany is trying to repatriate their gold stored in foreign countries, we will have to wait and see how that goes.
So there are a lot of big factors also influencing the price of gold. But the primary cause, whether price adjustment for or fear of, is inflation. Both present and fear of inflation future. After all, gold only preserves buying power if you own it over an extended period of time. You buy in anticipation of currency devaluation, not after it when it requires more paper currency to get the same piece of gold. So that the gold price has more than quadrupled should say something about how the world is feeling about the future at this time, especially with central banks hoarding it again.
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Ricky
Well-Known Member
Why are you telling me all of this stuff I already know?
It doesn't change what I said. I'm talking about sheer magnitude.
An asset doesn't quadruple+ in value because of inflation (which has been < 2% by the way).
My whole point was it DIDN'T go up that much in value because of inflation. That's ridiculous.
It doesn't change what I said. I'm talking about sheer magnitude.
An asset doesn't quadruple+ in value because of inflation (which has been < 2% by the way).
My whole point was it DIDN'T go up that much in value because of inflation. That's ridiculous.
ADF
Member
I don't believe government inflation figures, governments are always skewing figures in their favour and inflation is no different.
They're purchases driven through fear of continued currency devaluation into the future, which is justified given government policy both in the US and UK. That's an inflation justified decision, so I attribute it to inflation. Never mind gold is a monetary metal and hence subject to difference influences than other commodities.
If you don't then that's your business, I'm going to continue under the view that gold isn't in a bubble yet. I don't see the mania of buying by the public that one would expect from a bubble, the general public couldn't care less about the price of gold, except what the cash for gold stand is offering them...
I don't count ETF ownership as being a gold investment. ETFs are more a speculative instrument than a means of investing in gold, people looking to quickly flip gold during short term price movements. When buying for protection it's physical ownership that matters. That's why countries are trying to repatriate their gold, they're losing faith in IOUs.
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ITT: ADF expressing the depth of his ignorance of the smoke-in-mirrors end of economics. Do you even money multiply?
Ricky
Well-Known Member
People buying stuff because they are afraid the currency is going to inflate is speculation. NOT inflation.
That's not what inflation means, and in no way can it be construed as such.
Yes, people buy gold for that reason, as they did in the 80's when *that* bubble burst.
I'm not saying it's a bubble; nobody knows for sure. I just think it's overvalued at the moment.
If the Fed keeps pouring money into the economy the end result will be the Dow going up and gold will have the speculative rug pulled from under it if all the demagogues suddenly pull out because they think the stock market will do well. If there is a sudden plunge, people are going to sell.
That's not what inflation means, and in no way can it be construed as such.
Yes, people buy gold for that reason, as they did in the 80's when *that* bubble burst.
I'm not saying it's a bubble; nobody knows for sure. I just think it's overvalued at the moment.
If the Fed keeps pouring money into the economy the end result will be the Dow going up and gold will have the speculative rug pulled from under it if all the demagogues suddenly pull out because they think the stock market will do well. If there is a sudden plunge, people are going to sell.
ADF
Member
I've already mentioned the amplification effect of fractional reserve banking on money created by the central bank.
0.25% Federal Reserve rates, quantitative easing, debt monetisation... where is the speculation? There is nothing to speculate here, inflation is baked into the cake, it's guaranteed.
Some would argue that it's under valued.
The peak gold price in 1980 was $850. Adjusted for inflation, that is $2,368.38 today. So while the media bang on about gold hitting all time highs in 'number' terms, in real money terms it's nowhere near its historical peak.
In all honesty I wouldn't have called the events in 1980 a bubble. Yes the price exploded, but when you look at the circumstances of the time it makes sense why. The world had just been forced off the gold standard and there was a mad rush to exchange worthless paper currency for the physical gold that once backed it. It sounds an alien concept today, but we have to remember the world had just left the gold standard and people still strongly associated it with money. What burst the "bubble" was panicking governments who placed a temporary ban on the buying of gold on the exchange, part of their inflation fighting measures to combat the fallout of the Nixon Shock. Needless to say, if you ban buying gold contracts and people can only sell; the price is going to fall off a cliff. And this burned a lot of people who had bought at a higher price, deterring people from wanting to consider gold over the following decades. An experience the present generation of investors are not burdened with.
Granted, what's to stop the governments screwing everyone again? Quite frankly you cannot live your life based on how the government could screw you, especially when it comes to responding to threats on the horizon.
If the Fed keeps pouring money into the economy, the end result will be the price of everything will go up. Not just the stock market, not just gold, everything. So I'm not sure why you think the Dow would receive special treatment, especially with the 2008 and 2010 crashes in recent memory. The stock market is pretty much entirely reliant on Fed magic money right now, something even the bottom of the barrel commenters on Fox News have admitted. That, along with gilts/bonds, are the biggest bubble threats right now. Not gold. The moment the free money stops, the stock market and this fake recovery is going to go boom. But if they don't stop pumping out all this money, then there is a real risk of the dollar dying. You cannot expand the currency supply into infinity and not expect hyperinflation, it doesn't matter who you are.
You get these idiot gold bugs on YouTube salivating at the prospect of $5000 gold as a result of all these problems, they forget that gold is about protection; not profit. $5000 gold is not a good thing, you do not want to live in a world with $5000 gold. You cannot get rich off inflation, which is why this QE pumped up market is just full of hot air. The market going up is pointless if the cost of living goes up just as much, if not more. With enough inflation, everyone can be millionaires...
Anyway I'm off to bed, will check any responses in the morning.