The 'Helicopter
Economics Investing
Guide' is meant to help
educate people on how to
make profitable investing
choices in the current
economic environment.
We have coined this term
to describe the current
monetary and fiscal
policies of the U.S.
government, which
involve unprecedented
money printing. This is the
official blog of the New
York Investing meetup.
Economics Investing
Guide' is meant to help
educate people on how to
make profitable investing
choices in the current
economic environment.
We have coined this term
to describe the current
monetary and fiscal
policies of the U.S.
government, which
involve unprecedented
money printing. This is the
official blog of the New
York Investing meetup.
 | |  | |  | |  |
Daryl Montgomery
The third quarter of 2011 had the biggest drop and most volatility for stocks since 2008.
The fourth quarter may not be much better since the cause of the problem is a new
credit crisis and an emerging global recession. Both will continue to be a drag on the
market.
Except for small cap stocks, the U.S. markets did somewhat better than many overseas
markets during the quarter. The Hang Seng in Hong Kong was down 25.7%, the CAC-40
in France fell 25.6% and the DAX in Germany dropped 25.0%. Only the Russell 2000 in
the U.S. was lower by a comparable amount, falling 24.1% from its May 31st close.
These indices are all in deep bear territory. Not much better was the Bovespa in Brazil.
It lost 19.0% in the third quarter. The Brazilian market peaked in November 2010 and it
too is in a bear market.
While the bigger cap U.S. indices weren't down as much, they were severely
damaged nevertheless. The S&P 500 was lower by 15.9%, the Nasdaq by 14.8% and
the Dow industrials by 13.2%. This was just the drop during the quarter. U.S. stocks in
general peaked on May 2nd. From its high back then to its low in the third quarter, the
S&P 500 dropped 19.6%. A bear market is defined as a loss of 20%.
Volatility returned to the markets with a vengeance in the third quarter. The VIX index
reached a high of 48.00, not much below its peak in the 2000 to 2002 mega-bear, but
well off its Credit Crisis peak around 90. Mini-crashes returned to the market, with both
the Nasdaq and Russell 2000 experiencing drops equal to or greater than 5% on three
different days. There were four consecutive days in August when the Dow was up or
down by 400 points or more. A volatile market is prone to selling and markets usually
need to calm down before they can bottom.
Just as was the case during the Credit Crisis year of 2008, only two major assets were up
in the third quarter — treasuries and gold. The 10-year hit an all-time low yield of 1.71%
(bond prices go up when yields fall). This was well below the previous low that took
place because of the Great Depression in the 1930s. While the price of gold fell by 15%
at the end of the quarter, it rallied from the beginning until its peak on September 6th.
It wound up rising 5.8% (as measured by GLD) from its closing price on May 31st. Its
companion precious metal, silver, had a quarterly drop of 23.1%.
There is no reason to think that the market will bottom until problems in Europe come to
some stable resolution. Greece admitted over the weekend that it would not be
meeting the budget targets that were part of the terms of the first bailout. Global
markets are once again selling off, as if this was somehow surprising news — Greece has
misrepresented its financial number repeatedly, it would only be surprising if they
turned out to be accurate. Greece may still get its next tranche of bailout money,
since the EU has shown over and over again that its standards for the currency union
are meaningless. Eventually though Greece will default because too much bailout
money will be needed to keep it afloat. Even at that point, Spain and Italy will have
to be reckoned with.
The other issue facing the markets is a global economic downturn. While a case can
be made that the post-Credit Crisis economy never got out of recession (the
unemployment rate and consumer confidence remained at recession levels for
instance), the important question is whether or not economic activity is declining now.
Last week, even the ECRI (Economic Cycle Research Institute) admitted the U.S.
economy was heading down. Since a credit crisis can make an economic decline
much worse, this doesn't bode well for the markets in the upcoming months.
Disclosure: None
Daryl Montgomery
The fourth quarter may not be much better since the cause of the problem is a new
credit crisis and an emerging global recession. Both will continue to be a drag on the
market.
Except for small cap stocks, the U.S. markets did somewhat better than many overseas
markets during the quarter. The Hang Seng in Hong Kong was down 25.7%, the CAC-40
in France fell 25.6% and the DAX in Germany dropped 25.0%. Only the Russell 2000 in
the U.S. was lower by a comparable amount, falling 24.1% from its May 31st close.
These indices are all in deep bear territory. Not much better was the Bovespa in Brazil.
It lost 19.0% in the third quarter. The Brazilian market peaked in November 2010 and it
too is in a bear market.
While the bigger cap U.S. indices weren't down as much, they were severely
damaged nevertheless. The S&P 500 was lower by 15.9%, the Nasdaq by 14.8% and
the Dow industrials by 13.2%. This was just the drop during the quarter. U.S. stocks in
general peaked on May 2nd. From its high back then to its low in the third quarter, the
S&P 500 dropped 19.6%. A bear market is defined as a loss of 20%.
Volatility returned to the markets with a vengeance in the third quarter. The VIX index
reached a high of 48.00, not much below its peak in the 2000 to 2002 mega-bear, but
well off its Credit Crisis peak around 90. Mini-crashes returned to the market, with both
the Nasdaq and Russell 2000 experiencing drops equal to or greater than 5% on three
different days. There were four consecutive days in August when the Dow was up or
down by 400 points or more. A volatile market is prone to selling and markets usually
need to calm down before they can bottom.
Just as was the case during the Credit Crisis year of 2008, only two major assets were up
in the third quarter — treasuries and gold. The 10-year hit an all-time low yield of 1.71%
(bond prices go up when yields fall). This was well below the previous low that took
place because of the Great Depression in the 1930s. While the price of gold fell by 15%
at the end of the quarter, it rallied from the beginning until its peak on September 6th.
It wound up rising 5.8% (as measured by GLD) from its closing price on May 31st. Its
companion precious metal, silver, had a quarterly drop of 23.1%.
There is no reason to think that the market will bottom until problems in Europe come to
some stable resolution. Greece admitted over the weekend that it would not be
meeting the budget targets that were part of the terms of the first bailout. Global
markets are once again selling off, as if this was somehow surprising news — Greece has
misrepresented its financial number repeatedly, it would only be surprising if they
turned out to be accurate. Greece may still get its next tranche of bailout money,
since the EU has shown over and over again that its standards for the currency union
are meaningless. Eventually though Greece will default because too much bailout
money will be needed to keep it afloat. Even at that point, Spain and Italy will have
to be reckoned with.
The other issue facing the markets is a global economic downturn. While a case can
be made that the post-Credit Crisis economy never got out of recession (the
unemployment rate and consumer confidence remained at recession levels for
instance), the important question is whether or not economic activity is declining now.
Last week, even the ECRI (Economic Cycle Research Institute) admitted the U.S.
economy was heading down. Since a credit crisis can make an economic decline
much worse, this doesn't bode well for the markets in the upcoming months.
Disclosure: None
Daryl Montgomery
Real e Finance means business
Author, "Inflation Investing: A Guide for the 2010s"
Author, "Inflation Investing: A Guide for the 2010s"
© 2011 real e finance media.corp - all rights reserved
Daryl Montgomery
The third quarter of 2011 had the biggest drop and most volatility for stocks since 2008.
The fourth quarter may not be much better since the cause of the problem is a new
credit crisis and an emerging global recession. Both will continue to be a drag on the
market.
Except for small cap stocks, the U.S. markets did somewhat better than many overseas
markets during the quarter. The Hang Seng in Hong Kong was down 25.7%, the CAC-40
in France fell 25.6% and the DAX in Germany dropped 25.0%. Only the Russell 2000 in
the U.S. was lower by a comparable amount, falling 24.1% from its May 31st close.
These indices are all in deep bear territory. Not much better was the Bovespa in Brazil.
It lost 19.0% in the third quarter. The Brazilian market peaked in November 2010 and it
too is in a bear market.
While the bigger cap U.S. indices weren't down as much, they were severely
damaged nevertheless. The S&P 500 was lower by 15.9%, the Nasdaq by 14.8% and
the Dow industrials by 13.2%. This was just the drop during the quarter. U.S. stocks in
general peaked on May 2nd. From its high back then to its low in the third quarter, the
S&P 500 dropped 19.6%. A bear market is defined as a loss of 20%.
Volatility returned to the markets with a vengeance in the third quarter. The VIX index
reached a high of 48.00, not much below its peak in the 2000 to 2002 mega-bear, but
well off its Credit Crisis peak around 90. Mini-crashes returned to the market, with both
the Nasdaq and Russell 2000 experiencing drops equal to or greater than 5% on three
different days. There were four consecutive days in August when the Dow was up or
down by 400 points or more. A volatile market is prone to selling and markets usually
need to calm down before they can bottom.
Just as was the case during the Credit Crisis year of 2008, only two major assets were up
in the third quarter — treasuries and gold. The 10-year hit an all-time low yield of 1.71%
(bond prices go up when yields fall). This was well below the previous low that took
place because of the Great Depression in the 1930s. While the price of gold fell by 15%
at the end of the quarter, it rallied from the beginning until its peak on September 6th.
It wound up rising 5.8% (as measured by GLD) from its closing price on May 31st. Its
companion precious metal, silver, had a quarterly drop of 23.1%.
There is no reason to think that the market will bottom until problems in Europe come to
some stable resolution. Greece admitted over the weekend that it would not be
meeting the budget targets that were part of the terms of the first bailout. Global
markets are once again selling off, as if this was somehow surprising news — Greece has
misrepresented its financial number repeatedly, it would only be surprising if they
turned out to be accurate. Greece may still get its next tranche of bailout money,
since the EU has shown over and over again that its standards for the currency union
are meaningless. Eventually though Greece will default because too much bailout
money will be needed to keep it afloat. Even at that point, Spain and Italy will have
to be reckoned with.
The other issue facing the markets is a global economic downturn. While a case can
be made that the post-Credit Crisis economy never got out of recession (the
unemployment rate and consumer confidence remained at recession levels for
instance), the important question is whether or not economic activity is declining now.
Last week, even the ECRI (Economic Cycle Research Institute) admitted the U.S.
economy was heading down. Since a credit crisis can make an economic decline
much worse, this doesn't bode well for the markets in the upcoming months.
Disclosure: None
Daryl Montgomery
The fourth quarter may not be much better since the cause of the problem is a new
credit crisis and an emerging global recession. Both will continue to be a drag on the
market.
Except for small cap stocks, the U.S. markets did somewhat better than many overseas
markets during the quarter. The Hang Seng in Hong Kong was down 25.7%, the CAC-40
in France fell 25.6% and the DAX in Germany dropped 25.0%. Only the Russell 2000 in
the U.S. was lower by a comparable amount, falling 24.1% from its May 31st close.
These indices are all in deep bear territory. Not much better was the Bovespa in Brazil.
It lost 19.0% in the third quarter. The Brazilian market peaked in November 2010 and it
too is in a bear market.
While the bigger cap U.S. indices weren't down as much, they were severely
damaged nevertheless. The S&P 500 was lower by 15.9%, the Nasdaq by 14.8% and
the Dow industrials by 13.2%. This was just the drop during the quarter. U.S. stocks in
general peaked on May 2nd. From its high back then to its low in the third quarter, the
S&P 500 dropped 19.6%. A bear market is defined as a loss of 20%.
Volatility returned to the markets with a vengeance in the third quarter. The VIX index
reached a high of 48.00, not much below its peak in the 2000 to 2002 mega-bear, but
well off its Credit Crisis peak around 90. Mini-crashes returned to the market, with both
the Nasdaq and Russell 2000 experiencing drops equal to or greater than 5% on three
different days. There were four consecutive days in August when the Dow was up or
down by 400 points or more. A volatile market is prone to selling and markets usually
need to calm down before they can bottom.
Just as was the case during the Credit Crisis year of 2008, only two major assets were up
in the third quarter — treasuries and gold. The 10-year hit an all-time low yield of 1.71%
(bond prices go up when yields fall). This was well below the previous low that took
place because of the Great Depression in the 1930s. While the price of gold fell by 15%
at the end of the quarter, it rallied from the beginning until its peak on September 6th.
It wound up rising 5.8% (as measured by GLD) from its closing price on May 31st. Its
companion precious metal, silver, had a quarterly drop of 23.1%.
There is no reason to think that the market will bottom until problems in Europe come to
some stable resolution. Greece admitted over the weekend that it would not be
meeting the budget targets that were part of the terms of the first bailout. Global
markets are once again selling off, as if this was somehow surprising news — Greece has
misrepresented its financial number repeatedly, it would only be surprising if they
turned out to be accurate. Greece may still get its next tranche of bailout money,
since the EU has shown over and over again that its standards for the currency union
are meaningless. Eventually though Greece will default because too much bailout
money will be needed to keep it afloat. Even at that point, Spain and Italy will have
to be reckoned with.
The other issue facing the markets is a global economic downturn. While a case can
be made that the post-Credit Crisis economy never got out of recession (the
unemployment rate and consumer confidence remained at recession levels for
instance), the important question is whether or not economic activity is declining now.
Last week, even the ECRI (Economic Cycle Research Institute) admitted the U.S.
economy was heading down. Since a credit crisis can make an economic decline
much worse, this doesn't bode well for the markets in the upcoming months.
Disclosure: None
Daryl Montgomery
Author, "Inflation Investing: A Guide for the 2010s"
Author, "Inflation Investing: A Guide for the 2010s"
Daryl Montgomery
The third quarter of 2011 had the biggest drop and most volatility for stocks since 2008.
The fourth quarter may not be much better since the cause of the problem is a new
credit crisis and an emerging global recession. Both will continue to be a drag on the
market.
Except for small cap stocks, the U.S. markets did somewhat better than many overseas
markets during the quarter. The Hang Seng in Hong Kong was down 25.7%, the CAC-40
in France fell 25.6% and the DAX in Germany dropped 25.0%. Only the Russell 2000 in
the U.S. was lower by a comparable amount, falling 24.1% from its May 31st close.
These indices are all in deep bear territory. Not much better was the Bovespa in Brazil.
It lost 19.0% in the third quarter. The Brazilian market peaked in November 2010 and it
too is in a bear market.
While the bigger cap U.S. indices weren't down as much, they were severely
damaged nevertheless. The S&P 500 was lower by 15.9%, the Nasdaq by 14.8% and
the Dow industrials by 13.2%. This was just the drop during the quarter. U.S. stocks in
general peaked on May 2nd. From its high back then to its low in the third quarter, the
S&P 500 dropped 19.6%. A bear market is defined as a loss of 20%.
Volatility returned to the markets with a vengeance in the third quarter. The VIX index
reached a high of 48.00, not much below its peak in the 2000 to 2002 mega-bear, but
well off its Credit Crisis peak around 90. Mini-crashes returned to the market, with both
the Nasdaq and Russell 2000 experiencing drops equal to or greater than 5% on three
different days. There were four consecutive days in August when the Dow was up or
down by 400 points or more. A volatile market is prone to selling and markets usually
need to calm down before they can bottom.
Just as was the case during the Credit Crisis year of 2008, only two major assets were up
in the third quarter — treasuries and gold. The 10-year hit an all-time low yield of 1.71%
(bond prices go up when yields fall). This was well below the previous low that took
place because of the Great Depression in the 1930s. While the price of gold fell by 15%
at the end of the quarter, it rallied from the beginning until its peak on September 6th.
It wound up rising 5.8% (as measured by GLD) from its closing price on May 31st. Its
companion precious metal, silver, had a quarterly drop of 23.1%.
There is no reason to think that the market will bottom until problems in Europe come to
some stable resolution. Greece admitted over the weekend that it would not be
meeting the budget targets that were part of the terms of the first bailout. Global
markets are once again selling off, as if this was somehow surprising news — Greece has
misrepresented its financial number repeatedly, it would only be surprising if they
turned out to be accurate. Greece may still get its next tranche of bailout money,
since the EU has shown over and over again that its standards for the currency union
are meaningless. Eventually though Greece will default because too much bailout
money will be needed to keep it afloat. Even at that point, Spain and Italy will have
to be reckoned with.
The other issue facing the markets is a global economic downturn. While a case can
be made that the post-Credit Crisis economy never got out of recession (the
unemployment rate and consumer confidence remained at recession levels for
instance), the important question is whether or not economic activity is declining now.
Last week, even the ECRI (Economic Cycle Research Institute) admitted the U.S.
economy was heading down. Since a credit crisis can make an economic decline
much worse, this doesn't bode well for the markets in the upcoming months.
Disclosure: None
Daryl Montgomery
The fourth quarter may not be much better since the cause of the problem is a new
credit crisis and an emerging global recession. Both will continue to be a drag on the
market.
Except for small cap stocks, the U.S. markets did somewhat better than many overseas
markets during the quarter. The Hang Seng in Hong Kong was down 25.7%, the CAC-40
in France fell 25.6% and the DAX in Germany dropped 25.0%. Only the Russell 2000 in
the U.S. was lower by a comparable amount, falling 24.1% from its May 31st close.
These indices are all in deep bear territory. Not much better was the Bovespa in Brazil.
It lost 19.0% in the third quarter. The Brazilian market peaked in November 2010 and it
too is in a bear market.
While the bigger cap U.S. indices weren't down as much, they were severely
damaged nevertheless. The S&P 500 was lower by 15.9%, the Nasdaq by 14.8% and
the Dow industrials by 13.2%. This was just the drop during the quarter. U.S. stocks in
general peaked on May 2nd. From its high back then to its low in the third quarter, the
S&P 500 dropped 19.6%. A bear market is defined as a loss of 20%.
Volatility returned to the markets with a vengeance in the third quarter. The VIX index
reached a high of 48.00, not much below its peak in the 2000 to 2002 mega-bear, but
well off its Credit Crisis peak around 90. Mini-crashes returned to the market, with both
the Nasdaq and Russell 2000 experiencing drops equal to or greater than 5% on three
different days. There were four consecutive days in August when the Dow was up or
down by 400 points or more. A volatile market is prone to selling and markets usually
need to calm down before they can bottom.
Just as was the case during the Credit Crisis year of 2008, only two major assets were up
in the third quarter — treasuries and gold. The 10-year hit an all-time low yield of 1.71%
(bond prices go up when yields fall). This was well below the previous low that took
place because of the Great Depression in the 1930s. While the price of gold fell by 15%
at the end of the quarter, it rallied from the beginning until its peak on September 6th.
It wound up rising 5.8% (as measured by GLD) from its closing price on May 31st. Its
companion precious metal, silver, had a quarterly drop of 23.1%.
There is no reason to think that the market will bottom until problems in Europe come to
some stable resolution. Greece admitted over the weekend that it would not be
meeting the budget targets that were part of the terms of the first bailout. Global
markets are once again selling off, as if this was somehow surprising news — Greece has
misrepresented its financial number repeatedly, it would only be surprising if they
turned out to be accurate. Greece may still get its next tranche of bailout money,
since the EU has shown over and over again that its standards for the currency union
are meaningless. Eventually though Greece will default because too much bailout
money will be needed to keep it afloat. Even at that point, Spain and Italy will have
to be reckoned with.
The other issue facing the markets is a global economic downturn. While a case can
be made that the post-Credit Crisis economy never got out of recession (the
unemployment rate and consumer confidence remained at recession levels for
instance), the important question is whether or not economic activity is declining now.
Last week, even the ECRI (Economic Cycle Research Institute) admitted the U.S.
economy was heading down. Since a credit crisis can make an economic decline
much worse, this doesn't bode well for the markets in the upcoming months.
Disclosure: None
Daryl Montgomery
Author, "Inflation Investing: A Guide for the 2010s"
| Japan's Economy Shows Limits of Keynesian Policies |
Japan's Economy Shows Limits of Keynesian Policies
In the 1980s, Japan was an unstoppable economic juggernaut that everyone feared.
It all ended when a spectacular stock market and real estate bubble blew up in the
early 1990s. These bubbles were the ultimate outcome of excessive stimulus over many
decades. Initially, that stimulus acted to revive the Japanese economy from the ruins
of World War II. In the end, huge asset bubbles resulted. These collapsed throughout
the 1990s and the first decade of the 2000s. One government stimulus program after
another during that time only had temporary impact on the economy. As soon as the
stimulus ended, economic growth disappeared. The U.S. is currently finding itself in the
same situation.
Interest rates policy - also did not revive the economy. Japanese government
longer-term bond interest rates also collapsed, with the 10-year rate falling below 0.5%
at one point. Extremely low government bond rates indicate too much liquidity exists
in an economy and the government is getting too big a share of it. Businesses can be
starved for capital under such circumstances and this in turn limits economic growth
instead of stimulating it. This same pattern is emerging in the United States right now.
The two-year bond interest rate has been at record lows for weeks.
Keynesian economics became the almost universal approach for economic policy in
the developed economies after World War II. Keynes recommended initiatives,
stimulus during a downturn and paying off the stimulus debt during the recovery, got
horribly mangled to more and more stimulus during a downturn and somewhat less
stimulus during a recovery. This is essentially an ongoing money-printing scam. Like
many scams, it works well as long as it doesn't get out of control. Eventually though
some huge crisis becomes inevitable after decades of excessive stimulus and the
economy falls apart. Stimulus no longer works then. After two decades, the Japanese
have failed to realize this. The economic establishment in the U.S. is equally oblivious.
China is only in the early stages of the stimulus manipulation of its economy and is now
the world's current economic powerhouse. It surpassed the UK (the world's largest
economy until the U.S knocked it out of the box around 1880) in 2005, Germany in
2007, and now Japan in 2010. Media reports in 2009, estimated that China would
overtake Japan in 2012 or 2013. Time seems to be speeding up. The Washington Post
also predicted last year that China could overtake the U.S. as early as 2027, which was
much sooner than other predictions, which are as late as 2040. Even 2027 might prove
to be optimistic however.
Daryl Montgomery
In the 1980s, Japan was an unstoppable economic juggernaut that everyone feared.
It all ended when a spectacular stock market and real estate bubble blew up in the
early 1990s. These bubbles were the ultimate outcome of excessive stimulus over many
decades. Initially, that stimulus acted to revive the Japanese economy from the ruins
of World War II. In the end, huge asset bubbles resulted. These collapsed throughout
the 1990s and the first decade of the 2000s. One government stimulus program after
another during that time only had temporary impact on the economy. As soon as the
stimulus ended, economic growth disappeared. The U.S. is currently finding itself in the
same situation.
Interest rates policy - also did not revive the economy. Japanese government
longer-term bond interest rates also collapsed, with the 10-year rate falling below 0.5%
at one point. Extremely low government bond rates indicate too much liquidity exists
in an economy and the government is getting too big a share of it. Businesses can be
starved for capital under such circumstances and this in turn limits economic growth
instead of stimulating it. This same pattern is emerging in the United States right now.
The two-year bond interest rate has been at record lows for weeks.
Keynesian economics became the almost universal approach for economic policy in
the developed economies after World War II. Keynes recommended initiatives,
stimulus during a downturn and paying off the stimulus debt during the recovery, got
horribly mangled to more and more stimulus during a downturn and somewhat less
stimulus during a recovery. This is essentially an ongoing money-printing scam. Like
many scams, it works well as long as it doesn't get out of control. Eventually though
some huge crisis becomes inevitable after decades of excessive stimulus and the
economy falls apart. Stimulus no longer works then. After two decades, the Japanese
have failed to realize this. The economic establishment in the U.S. is equally oblivious.
China is only in the early stages of the stimulus manipulation of its economy and is now
the world's current economic powerhouse. It surpassed the UK (the world's largest
economy until the U.S knocked it out of the box around 1880) in 2005, Germany in
2007, and now Japan in 2010. Media reports in 2009, estimated that China would
overtake Japan in 2012 or 2013. Time seems to be speeding up. The Washington Post
also predicted last year that China could overtake the U.S. as early as 2027, which was
much sooner than other predictions, which are as late as 2040. Even 2027 might prove
to be optimistic however.
Daryl Montgomery
Author, "Inflation Investing: A Guide for the 2010s"
| Our hearts are with you Japan. |
Total Federal Outlays: 1900-2010
| Right of Green Line, Era of Keynesian Economics, Right of Red Line no Gold Standard |
The truth and nothing but...