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Thread: Dow plunges 500 points

  1. #26
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    Default Re: Dow plunges 500 points

    Just an update: Dow futures down another 350 points right now, pointing to a sharply lower open. It looks like the pain isn't over yet.

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    Default Re: Dow plunges 500 points

    ^^ Indeed it is. Conservatively, I think the strongest sectors of the market will bounce back in the next 6-8 weeks to near-previous levels, maybe as far out as 10-12 weeks. Energy stocks took less of a hit individually and are coming back up again much more quickly than the rest of the market is in general and that's where my interests tend to lie these days (although, that is, as always, something that can change quickly with the economy). If you're in the electronics sector with, say, Apple, it may be a while for sure, particularly because their emerging markets are overseas in areas that have been hit by the Greek/Chinese problems.

    My take on the fed rate hike is pretty in line what major analysts are saying, namely, make up your damned minds! The market doesn't necessarily need to deal with a rate hike, but it's been coming down the pipeline for long enough that it's expected. Hearing numbers varying from .25% all the way up to 1.5% (and those are just what I've heard) come out of the mouth's of various members on the federal committee just makes people uncertain. A planned rate hike with a set percentage can be dealt with. Waking up in a few weeks to a surprise number is not ideal.

    In terms of buying at a low point for long term investors to 'snag a deal,' I'm pointing more towards 10+ year long term investors who are looking for solid, long-term preforming stocks to add to a portfolio for eventual retirement. Time is on their side and if they have a portfolio that will remain relatively unchanged in terms of composition of stocks for the next decade, now is a lovely time to buy since one can ride the wave. If long-term is looked at more as 'a year or so,' then I could certainly see why people would be gun-shy.


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    Default Re: Dow plunges 500 points

    Quote Originally Posted by Issabelle View Post
    And we had another down day, so there's always that. It was around 120 points down at close, but hey--happy Monday everyone!

    As Rick has correctly pointed out, it did finish last week higher than it started but that doesn't really say much for the bigger picture. The most recent drop started on the 17th-18th from a high of ~17,550 (varied about 35-40 points from the 17th to 18th, so I consider the drop to have started on the 18th). The ~16,525 it closed at today is certainly better than the ~15,670 low close it had on the 25th, but that still means that for many traders things are pretty stuck.

    If you're a day trader and had stop-loss limits in place, your capital should be more-or-less completely intact with full liquidity to buy the ever loving shit out of some seriously devalued stocks and make a hell of a profit while you ride the wave back to the top. If, as in the case of my close relative, you decided to have a 'cheat day' and not set your damned stop-loss limits, you're going to spend the next few weeks to months waiting for the market to come back least you sell at a loss. And the moral of this story, for the short-term trader anyway, is remember your stop limits!

    For a long-term trader, the moral of the story is closer to 'stop losing your shit sweetie, the US economy is currently not showing any major issues and will bounce back, so why don't you add some strong-but-devalued stock to your long-term portfolio on the cheap.' Of course, the feds being completely unable to agree on whether or not there's going to be an interest rate hike, let alone a number that it would be, is certainly not helping confidence for anyone.

    And, if you happen to be a dancer/escort/other worker who depends on the financial guys for the bulk of your client list, well... I've got a bottle of 'medicinal' alcohol in my office. So there's that.
    That's me. LOL the majority of my customers are white collar. My point of starting this thread really had nothing to do with the matket. Just more confirmation of a ruff year for girls who work in the clubs. Especially girls like me who travel to hot spots with wealthy clientele with disposable income. A lot aren't going to make the annual trip. I saw it starting last year. Did you get my om? My computer was acting wonky and I was going to leave you a visitor message but couldn't. I appreciate all your advise.

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    Default Re: Dow plunges 500 points

    I blame it on all the retrogrades right now.


    MANY MEN WANTED TO LAY ME DOWN, BUT FEW WANTED TO LIFT ME UP

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    MANY MEN WANTED TO LAY ME DOWN, BUT FEW WANTED TO LIFT ME UP

    -Eartha Kitt

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    God/dess rickdugan's Avatar
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    Default Re: Dow plunges 500 points

    Yup. The markets are crazy right now with no end in sight. Many pros don't hold much hope for a great September, though of course it is only the 1st. Time will tell, but I believe that Michelle is right with her theory that things could get tighter for those who rely upon people who are (1) employed in financial services; or (2) sensitive to hits to their personal portfolios.
    Last edited by rickdugan; 09-01-2015 at 06:54 PM.

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    Default Re: Dow plunges 500 points

    The drop in the stock market is almost entirely due to events happening overseas. In the US, the economy continues to slowly improve. Consumer spending is slowly going up and so are wages. Economic growth increased 3.7 percent in the second quarter.

    http://www.pymnts.com/news/2015/cons.../#.VeZdCX1HatF

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    Default Re: Dow plunges 500 points

    Eagle, manufacturing numbers were well below expectation, GDP growth is anemic and labor participation rates still suck. Also, while housing starts are good, housing permits are down. If things were so good, the Fed wouldn't have kept rates at 0 for nine years and they wouldn't still, to this day, be on the fence about raising them. So I'm not going to trip over myself with joyous exultation just yet. This is the worst so called recovery since the Great Depression.

    Oh, and the U.S. doesn't exist in a vacuum. We are already shaky enough as it is - problems with companies that have overseas exposure just makes things even less certain.

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    Default Re: Dow plunges 500 points

    GDP growth in the second quarter was 3.7 percent which is far from anemic. The main reason labor participation rates are down is because of the large number of baby-boomers retiring. The first baby-boomers turned 65 in 2011. Interest rates have been low because inflation has been low. By most measurements, the US economy is doing well. Unemployment is close to 5 percent. Hundreds of thousands of jobs are being created every month. The price of gasoline is way down. Corporations are having record profits.

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    Default Re: Dow plunges 500 points

    That was one quarter of GDP Eagle. We had a quarter last year that was even better, but the year was not so great and the first quarter of this year stunk. Keep in mind too that both housing permits and manufacturing measures are down, which does not bode well for Q3 and Q4 GDP growth.

    I'm not sure where you are getting the corporate profit numbers, since they have fallen in both Q1 and Q2 of 2015.

    And as far as labor force participation, more folks would return back to the workforce if it were lucrative enough to do so. Low labor force participation is, IMHO, one of the biggest reasons why GDP growth continues to be weak.

    Seriously now. Talk to me when the Fed isn't afraid to raise interest rates above freakin' 0.
    Last edited by rickdugan; 09-02-2015 at 07:01 PM.

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    Default Re: Dow plunges 500 points

    As I've said before, the U.S. market doesn't have a crisis on its hands. However, there's a big difference between 'no crisis' and 'no problems.' Things are still shaky, as Rick correctly points out. Some numbers are up for the quarter and some are down, but the year overall can't be evaluated before it's over.

    My relatives and I often joke (with no small amount of truth) that the best stock to follow to see if things are truly bad versus somewhat shaky/paranoid is Walmart. When that's down, there are real issues. And, coincidentally, Walmart stock is down at the moment, although by only a few cents. There are a number of reasons for that, including changes to their wage policy, but it's very telling when Walmart stock drops because it's the cheapest of the cheap in terms of buying basics and household items. When it drops, people flat out aren't spending and that does not speak well for the economy.

    Michelle--if you PMed me in the last 24 hours, I haven't gotten it and nothing on my visitor wall either. Try sending it again.


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    Default Re: Dow plunges 500 points

    Quote Originally Posted by Issabelle View Post
    As I've said before, the U.S. market doesn't have a crisis on its hands. However, there's a big difference between 'no crisis' and 'no problems.' Things are still shaky, as Rick correctly points out. Some numbers are up for the quarter and some are down, but the year overall can't be evaluated before it's over.
    So right you are. We have plenty of problems. One of my big markets is doing well, apartments. But, they are doing well at the expense of first homes. That's good for one segment of my business. What's not doing so well in my business is industrial construction and maintenance. That segment is down. Meaning well paying construction jobs and manufacturing jobs are not being created. I rate the economy as having a lot of room for improvement.

    Z

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    Default Re: Dow plunges 500 points

    Quote Originally Posted by rickdugan View Post

    Seriously now. Talk to me when the Fed isn't afraid to raise interest rates above freakin' 0.
    The reason why interest rates are so low is because inflation is very low. It has nothing to do with the state of the economy. The unemployment rate is around 5 percent. In 1981, the unemployment rate was around 10 percent, but the Fed push interest rates to around 18 percent. The high interest rates back then didn't mean the economy was doing well.

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    Default Re: Dow plunges 500 points

    Quote Originally Posted by rickdugan View Post
    That was one quarter of GDP Eagle. We had a quarter last year that was even better, but the year was not so great and the first quarter of this year stunk. Keep in mind too that both housing permits and manufacturing measures are down, which does not bode well for Q3 and Q4 GDP growth.

    I'm not sure where you are getting the corporate profit numbers, since they have fallen in both Q1 and Q2 of 2015.

    And as far as labor force participation, more folks would return back to the workforce if it were lucrative enough to do so. Low labor force participation is, IMHO, one of the biggest reasons why GDP growth continues to be weak.

    Seriously now. Talk to me when the Fed isn't afraid to raise interest rates above freakin' 0.
    I'll just add that unemployment numbers don't count those who have given up, are working part time for peanuts where they were once making far more, those in the underground economy now, etc.
    “What a caterpillar calls the end of the world we call a butterfly.” - ECKHART TOLLE

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    Default Re: Dow plunges 500 points

    Yes. Were back down to 26 weeks. So in Dec 1.8 million people lost benefits.

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    Default Re: Dow plunges 500 points

    Quote Originally Posted by eagle2 View Post
    The reason why interest rates are so low is because inflation is very low. It has nothing to do with the state of the economy. The unemployment rate is around 5 percent. In 1981, the unemployment rate was around 10 percent, but the Fed push interest rates to around 18 percent. The high interest rates back then didn't mean the economy was doing well.
    Eagle, the Fed does indeed raise interest rates to cool inflation, even though it can have its own negative effect on economic growth. They do so under the assumption that high inflation is worse for the economy than the potential impact of higher interest rates on loans.

    Your jumbled facts are actually a good example, at least when corrected for timing. In 1980 inflation hit a whopping 13.5%. In 1981, in an effort to stop this runaway inflation, the Fed raised the Fed Funds rate to 20%. And this did indeed push the economy into a recession by 1982, since lending activities essentially froze. Your unemployment numbers were achieved in 1982, the year AFTER the Fed took this drastic measure and pushed the economy into recession.

    And yes, the Fed sometimes will lower interest rates to stave off deflation. But deflation is not a huge practical risk over any long stretch of time in an economy like ours (or at least it hasn't been since the 1930s) and the Fed has other tools in its arsenal to manage it, including printing more money. Deflation, when it does occur, also often goes hand in hand with economic downturns. Net-net, burying the interest rate at 0 for nine years can only have one underlying cause, which is the need to continue to give the economy life support by making borrowing cheap.

    Please see the articles below, including an explanation from the Fed itself for its current interest rate position.

    http://www.federalreserve.gov/faqs/money_12849.htm
    http://www.investopedia.com/articles...olicy-zirp.asp
    Last edited by rickdugan; 09-05-2015 at 05:55 PM.

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    Default Re: Dow plunges 500 points

    Quote Originally Posted by rickdugan View Post
    Eagle, the Fed does indeed raise interest rates to cool inflation, even though it can have its own negative effect on economic growth. They do so under the assumption that high inflation is worse for the economy than the potential impact of higher interest rates on loans.
    Yes, the Fed raises rates to fight inflation. There is practically no inflation now, so why should the Fed raise interest rates?

    Quote Originally Posted by rickdugan View Post
    Your jumbled facts are actually a good example, at least when corrected for timing. In 1980 inflation hit a whopping 13.5%. In 1981, in an effort to stop this runaway inflation, the Fed raised the Fed Funds rate to 20%. And this did indeed push the economy into a recession by 1982, since lending activities essentially froze. Your unemployment numbers were achieved in 1982, the year AFTER the Fed took this drastic measure and pushed the economy into recession.
    I didn't jumble the facts. You keep insisting that the Fed's low interest rates are an indicator that the economy is bad. I'm pointing out that there have been times that the economy was much worse than it is today, and interest rates were much higher. Just because the Fed is keeping interest rates low does not mean the economy is weak. It just means that the Fed doesn't think it's necessary to raise rates. The economy continues to grow, and jobs are being added every month. We're currently on pace to have the most private sector jobs added during a four year term.

    http://www.businessinsider.com/obama...-growth-2015-2

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    Default Re: Dow plunges 500 points

    Eagle, there are several negative consequences to keeping interest rates at 0. It discourages savings, including retirement savings. It also forces current retirees who rely on interest income to support themselves to reduce their spending. It also forces pension plans and IRA account holders to make riskier bets in order to earn interest income. This is not an exhaustive list - there are several other short and long term consequences as well. It is not a natural state of affairs and it is a measure that is only implemented in dire circumstances, such as the Great Recession.

    And you most certainly did jumble your facts. Read your comment and my response more slowly if needed. Your dates were off, which made you miss part of the cause and effect analysis. Nobody said you cannot have high interest rates in a bad economic environment.

    What you are missing is that inflation is far more likely to occur for non-growth reasons that deflation. Inflation has multiple causes, many of which have nothing to do with domestic economic growth. So inflation can certainly be high during bad economic times and force the Fed to jack up interest rates, even if the consequences are more painful. Google "stagflation", which was what was happening around that time. Deflation, on the other hand, is almost always linked to a decreased demand for goods and services brought on by domestic growth issues.

    And if your confusion continues to extend to the Fed's motives for keeping the needle unnaturally buried at zero, read their own policy sheet again, which I included above. Unless, of course, you believe that the Fed is lying to us about what it is doing and why.

    I don't know if you have ever taken an Econ class, but these are fundamental concepts if you are going to debate interest rate policies. Google is your friend Eagle - there is no shame in looking stuff up.

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    Default Re: Dow plunges 500 points

    Quote Originally Posted by rickdugan View Post
    Eagle, there are several negative consequences to keeping interest rates at 0. It discourages savings, including retirement savings. It also forces current retirees who rely on interest income to support themselves to reduce their spending. It also forces pension plans and IRA account holders to make riskier bets in order to earn interest income. This is not an exhaustive list - there are several other short and long term consequences as well. It is not a natural state of affairs and it is a measure that is only implemented in dire circumstances, such as the Great Recession.
    The Fed is responsible for keeping the economy stable, not providing high returns on savings accounts. Raising interest rates could result in lower spending by consumers and businesses, which could lead to unemployment increasing rather than decreasing, which is much worse than savers getting one or two percent less in interest for their savings accounts.

    Quote Originally Posted by rickdugan View Post
    And you most certainly did jumble your facts. Read your comment and my response more slowly if needed. Your dates were off, which made you miss part of the cause and effect analysis. Nobody said you cannot have high interest rates in a bad economic environment.
    No I didn't, other than my numbers were approximates. The Fed increased interest rates in 80 and 81, even though unemployment was much higher than today, because inflation was more of a concern than unemployment. You keep insisting the economy is bad because interest rates are low, which implies that interest rates somehow indicate the state of the economy.

    Quote Originally Posted by rickdugan View Post
    What you are missing is that inflation is far more likely to occur for non-growth reasons that deflation. Inflation has multiple causes, many of which have nothing to do with domestic economic growth. So inflation can certainly be high during bad economic times and force the Fed to jack up interest rates, even if the consequences are more painful. Google "stagflation", which was what was happening around that time. Deflation, on the other hand, is almost always linked to a decreased demand for goods and services brought on by domestic growth issues.

    And if your confusion continues to extend to the Fed's motives for keeping the needle unnaturally buried at zero, read their own policy sheet again, which I included above. Unless, of course, you believe that the Fed is lying to us about what it is doing and why.
    I have read your link and it supports my view.
    http://www.federalreserve.gov/faqs/money_12849.htm

    -snip-
    Information received during the early months of 2015 suggests that economic growth moderated somewhat from the solid pace seen during the latter part of 2014. Labor market conditions have improved further, and a range of labor market indicators suggests that underutilization of labor resources continues to diminish. At the same time, inflation has declined further below the Committee’s longer-run objective, largely reflecting declines in energy prices.
    -snip-

    Quote Originally Posted by rickdugan View Post
    I don't know if you have ever taken an Econ class, but these are fundamental concepts if you are going to debate interest rate policies. Google is your friend Eagle - there is no shame in looking stuff up.
    I've taken university courses in macro-economics, micro-economics, and comparative economic systems. My GPA in economics courses was 4.0. I have a good understanding of the subject. The fact is, most economists are more in agreement with me than you. Most economists have a positive outlook on the US economy. Here is one survey:

    http://www.industryweek.com/global-e...nomists-survey

    Four out of five economists in the survey expect the US economy to strengthen over the next year.

    If you are going to continue to make condescending comments, I'm not going to bother to respond.

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    Default Re: Dow plunges 500 points

    I have to agree. I've danced when interest rates were astronomical and I did very well and the economy was doing well. Obviously you guys aren't going to agree. So agree to disagree and move on.

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    Default Re: Dow plunges 500 points

    Quote Originally Posted by eagle2 View Post
    The Fed is responsible for keeping the economy stable, not providing high returns on savings accounts. Raising interest rates could result in lower spending by consumers and businesses, which could lead to unemployment increasing rather than decreasing, which is much worse than savers getting one or two percent less in interest for their savings accounts.

    No I didn't, other than my numbers were approximates. The Fed increased interest rates in 80 and 81, even though unemployment was much higher than today, because inflation was more of a concern than unemployment. You keep insisting the economy is bad because interest rates are low, which implies that interest rates somehow indicate the state of the economy.

    I have read your link and it supports my view.
    http://www.federalreserve.gov/faqs/money_12849.htm

    -snip-
    Information received during the early months of 2015 suggests that economic growth moderated somewhat from the solid pace seen during the latter part of 2014. Labor market conditions have improved further, and a range of labor market indicators suggests that underutilization of labor resources continues to diminish. At the same time, inflation has declined further below the Committee’s longer-run objective, largely reflecting declines in energy prices.
    -snip-

    I've taken university courses in macro-economics, micro-economics, and comparative economic systems. My GPA in economics courses was 4.0. I have a good understanding of the subject. The fact is, most economists are more in agreement with me than you. Most economists have a positive outlook on the US economy. Here is one survey:

    http://www.industryweek.com/global-e...nomists-survey

    Four out of five economists in the survey expect the US economy to strengthen over the next year.

    If you are going to continue to make condescending comments, I'm not going to bother to respond.
    I don't know who "most economists" are supposed to be, but no reputable economist would argue that 8 years of anemic GDP growth and a Fed afraid to move the interest rate needle from zero for the last 7 years are good things. I certainly doubt that your former professors taught that to you.

    You also poo poo'd the very real short-term and potential long-term impacts of burying the needle at 0 for seven years. Not one month or a few months, but seven solid years. I doubt that your former professors taught that to you either. A needle buried like that for that long is going to have several long-term implications, many of which we will pay for much later on. It will also have short-term consequences once the rate is finally raised, including bursting asset bubbles that have resulted from nine years of cheap money and steering investments away from debt and to other areas instead.

    And of course they did it to spur growth and jobs over that time, which is exactly what I have been contending all along. The need for it is the issue. You agree with why they did it, but on the other hand give a flippant response about low inflation when I say that it is a sign of problems when the Fed needs to continue life support. Frankly, that is a bit inconsistent.

    Oh, and if by "most economists" you are referring to the National Association for Business Economics, I'm guessing that they wish that they could take back their survey results right about now. Since that was published, corporate earnings results underperformed estimates. Also, Q3 and Q4 estimates have been revised downward due to, among other things, global economic pressures.

    http://www.bloomberg.com/news/articl...economy-dollar
    http://blogs.wsj.com/moneybeat/2015/...lf-since-2009/

    But even if corporate earnings weren't coming under pressure, I still wouldn't be taking any victory laps about the economy and I won't until GDP becomes healthy again and the Fed can bring interest rates to historical norms without fear of triggering a collapse. Neither will anyone else with a shred of sense.
    Last edited by rickdugan; 09-09-2015 at 06:49 AM. Reason: changed "9" to "7" as caught by minnow

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    Default Re: Dow plunges 500 points

    Quote Originally Posted by rickdugan View Post
    I don't know who "most economists" are supposed to be, but no reputable economist would argue that 9 years of anemic GDP growth and a Fed afraid to move the interest rate needle from zero for that entire time are good things. I certainly doubt that your former professors taught that to you.

    You also poo poo'd the very real short-term and potential long-term impacts of burying the needle at 0 for nine years. Not one month or a few months, but nine solid years. I doubt that your former professors taught that to you either. A needle buried like that for that long is going to have several long-term implications, many of which we will pay for much later on. It will also have short-term consequences once the rate is finally raised, including bursting asset bubbles that have resulted from nine years of cheap money and steering investments away from debt and to other areas instead.

    And of course they did it to spur growth and jobs over that time, which is exactly what I have been contending all along. The need for it is the issue. You agree with why they did it, but on the other hand give a flippant response about low inflation when I say that it is a sign of problems when the Fed needs to continue life support. Frankly, that is a bit inconsistent.

    Oh, and if by "most economists" you are referring to the National Association for Business Economics, I'm guessing that they wish that they could take back their survey results right about now. Since that was published, corporate earnings results underperformed estimates. Also, Q3 and Q4 estimates have been revised downward due to, among other things, global economic pressures.

    http://www.bloomberg.com/news/articl...economy-dollar
    http://blogs.wsj.com/moneybeat/2015/...lf-since-2009/

    But even if corporate earnings weren't coming under pressure, I still wouldn't be taking any victory laps about the economy and I won't until GDP becomes healthy again and the Fed can bring interest rates to historical norms without fear of triggering a collapse. Neither will anyone else with a shred of sense.
    Rick, wrt "interest rates buried near zero for 9 years" I think you're confusing that with the last time the Fed raised interest rates in 2006. That was June 2006 when they raised it to 5.25%. It stayed there until Sept. 2007 when Fed lowered the rate to 4.75%. I would hardly call that "buried near zero." Fed subsequently made many rate reductions, hitting 1% on Oct.29,2008. Since December 16,2008, Fed has kept rate in the 0-0.25 % range. As of todays posting, that makes it 6.7315068 years (I figured that out with Vulcan-like precision ) that rate has been buried near zero.

    Pedantry aside, that is still a long time to have rates buried that low. I agree with much of what you say in above posts. To help savers in a meaningful way, imho, Fed would have to hike rates more than just 0.25-0.5%. At least some sources think Fed will only raise it 0.25%, if at all, and then take a "look see." Also IMHO being bullish in present environment would be like proclaiming "spring has arrived" on a 40 degree day because it is just warm enough to melt some snow.
    Last edited by minnow; 09-09-2015 at 06:19 AM. Reason: typo corr.
    I'm right 96% of the time. I don't sweat the other 5% .......................

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    Default Re: Dow plunges 500 points

    Quote Originally Posted by minnow View Post
    Rick, wrt "interest rates buried near zero for 9 years" I think you're confusing that with the last time the Fed raised interest rates in 2006. That was June 2006 when they raised it to 5.25%. It stayed there until Sept. 2007 when Fed lowered the rate to 4.75%. I would hardly call that "buried near zero." Fed subsequently made many rate reductions, hitting !% on Oct.29,2008. Since December 16,2008, Fed has kept rate in the 0-0.25 % range. As of todays posting, that makes it 6.7315068 years (I figured that out with Vulcan-like precision ) that rate has been buried near zero.

    Pedantry aside, that is still a long time to have rates buried that low. I agree with much of what you say in above posts. To help savers in a meaningful way, imho, Fed would have to hike rates more than just 0.25-0.5%. At least some sources think Fed will only raise it 0.25%, if at all, and then take a "look see." Also IMHO being bullish in present environment would be like proclaiming "spring has arrived" on a 40 degree day because it is just warm enough to melt some snow.
    Good catch minnow. I should have said 7 and not 9. It's been so damned long now that my mind is playing tricks on me and extending the time out even further.

    I also agree with everything else you said. I think Warren Buffet said it best when he recently said, "The economy is not bad, but not booming." The scary thing though is that even he believes that the economy still needs the interest rate needle set low (if not at zero), as do many other pundits.

    http://www.cnbc.com/2015/09/08/warre...ming-rate.html

    Seriously now. We have needed the needle buried at 0 just to eke out annual GDP numbers of 1.6 to 2.5% for the last 4 full years of measurement and now we are on tap for another year at or below 2%. Of course the Fed is on the fence about raising rates. How can anyone with any historical perspective be pleased about this so-called recovery? At best it could be called fragile if it continues to need artificial interest rate life support and I am admittedly worried about what even modest Fed rate hikes could do.
    Last edited by rickdugan; 09-09-2015 at 07:01 AM.

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    Default Re: Dow plunges 500 points

    Quote Originally Posted by rickdugan View Post
    I don't know who "most economists" are supposed to be, but no reputable economist would argue that 8 years of anemic GDP growth and a Fed afraid to move the interest rate needle from zero for the last 7 years are good things. I certainly doubt that your former professors taught that to you.
    For the past 5 years we've been averaging over 2 percent GDP growth, which isn't great, but I wouldn't call it anemic either, especially compared with other western countries.

    Quote Originally Posted by rickdugan View Post
    You also poo poo'd the very real short-term and potential long-term impacts of burying the needle at 0 for seven years. Not one month or a few months, but seven solid years. I doubt that your former professors taught that to you either. A needle buried like that for that long is going to have several long-term implications, many of which we will pay for much later on. It will also have short-term consequences once the rate is finally raised, including bursting asset bubbles that have resulted from nine years of cheap money and steering investments away from debt and to other areas instead.
    You don't know that. Raising interest rates may or may not have a negative impact on the economy, when it happens. It will depend on the state of the economy at the time. In 2012 a lot of people were saying that a tax increase in 2013 would have a negative impact on the economy. A tax increase did go into effect in 2013 and the economy continued to grow, and job growth continued.

    In the meantime, millions of Americans have been benefiting from the low interest rates.


    Quote Originally Posted by rickdugan View Post
    And of course they did it to spur growth and jobs over that time, which is exactly what I have been contending all along. The need for it is the issue. You agree with why they did it, but on the other hand give a flippant response about low inflation when I say that it is a sign of problems when the Fed needs to continue life support. Frankly, that is a bit inconsistent.
    You're misrepresenting low interest rates as "life support". It's true the Fed and the government took extreme measures in 2008 and 2009 to prevent an economic catastrophe, but the current rate is based more on what is optimal for the economy at this time, rather than providing "life support". Inflation was at 0.2 percent over the past year. In August it was at zero. Given the rate of inflation, it makes no sense to raise interest rates when the economy is operating at less than full capacity. That is why the Fed hasn't raised rates, not because they're afraid to. If inflation was currently at 4 or 5 percent, and everything else in the economy was exactly the same as it is now, I'm sure the Fed would not hesitate to raise rates.

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    Default Re: Dow plunges 500 points

    Quote Originally Posted by eagle2 View Post
    For the past 5 years we've been averaging over 2 percent GDP growth, which isn't great, but I wouldn't call it anemic either, especially compared with other western countries.

    You don't know that. Raising interest rates may or may not have a negative impact on the economy, when it happens. It will depend on the state of the economy at the time. In 2012 a lot of people were saying that a tax increase in 2013 would have a negative impact on the economy. A tax increase did go into effect in 2013 and the economy continued to grow, and job growth continued.

    In the meantime, millions of Americans have been benefiting from the low interest rates.

    You're misrepresenting low interest rates as "life support". It's true the Fed and the government took extreme measures in 2008 and 2009 to prevent an economic catastrophe, but the current rate is based more on what is optimal for the economy at this time, rather than providing "life support". Inflation was at 0.2 percent over the past year. In August it was at zero. Given the rate of inflation, it makes no sense to raise interest rates when the economy is operating at less than full capacity. That is why the Fed hasn't raised rates, not because they're afraid to. If inflation was currently at 4 or 5 percent, and everything else in the economy was exactly the same as it is now, I'm sure the Fed would not hesitate to raise rates.
    Of course raising interest rates will have negative economic consequences. It raises the cost of borrowing, which affects everything from the mortgage market to capital spending by corporations. The only question is how well positioned the economy is to absorb the impact.

    And of course zero interest rates are ideally undesirable because they have consequences, including the creation of asset bubbles through both investment diversion and cheap money (the stock market among others), zombie banks and companies living off of cheap money, dis-savings for retirement, riskier investments by pensions and other investors (including in those zombie companies), and even reckless borrowing by a number of parties. And, by extension, the bills start coming due when rates are raised (asset bubbles burst; zombie companies crash; a variety of investments, including stocks, bonds and real estate, devalue; etc.).

    So yes I call it life support, because a Central Bank would only be foolish enough to keep the interest rate so low for so long if they felt the other consequences would be worse. You cannot say that they kept the rate at zero to help people on one hand, but then not call it "life support" and try to use inflation as the sole rationale on the other. Also, 1.6 to 2.4% GDP growth while we have made money so cheap - almost free on an overnight basis to lenders - is indeed a sign that we still have problems.

    Many very knowledgeable pundits felt that they should have raised the rate a year ago, when GDP growth and inflation were a little stronger than they are now and corporate profits were peaking. I cannot help but agree with that assessment. The longer rates stay buried at zero, the more exacerbated the consequences will be when they start raising the rates. Now the Fed is in the very undesirable position of needing to tip toe out of the gate and gradually raise the rates by 25 bps a pop for fear of what a more drastic increase could do.

    And I'll pass on comparing our economy to the perennially stagnant economies of Europe, thank you very much. Historically we have been better than that and I'm nowhere near ready to accept their stagnant output and wage growth model as the new norm for the U.S.
    Last edited by rickdugan; 09-12-2015 at 06:49 AM.

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