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Chuck Jaffe: 6 Bad Reasons To Make Changes To Your Portfolio
1. ‘It can’t go up forever,’ or ‘We are overdue for a downturn or a correction.’ - The first part of this straw-man is true. The second part does not necessarily follow.
2. ‘Because the bull run has been long, any decline is going to be big, too.’ - This is a patently false premise. Duration of a bull market is not the determining factor in the severity of corrections. Valuations and economic conditions are the primary drivers.
3. ‘The Federal Reserve is serious about raising rates now, and that’s going to end the rally.’ - The first part of his statement is probably true. The second part does not necessarily follow.
4. ‘The government will screw this up.’ - This is a silly argument. Governments come and go depending on the outcome of elections.
5. ‘The market is overpriced.’ - This is probably true in general. However, it's a straw-man so "all-inclusive" that it's easy to knock down.
6. ‘You can’t lose money in cash, so I will wait until the next downturn passes.’ - True and false. The validity of the argument hinges on the meaning of "money." Cash won't lose "nominal" value. As Jaffe points out, it will lose purchasing power.
My conclusion? Jaffe has managed to shed little light on the question of whether or not you should make changes to your portfolio. Setting up a list of largely bogus assumptions ("straw-men") and than refuting them, serves little purpose IMHO.
The consensus wisdom from successful football coaches is that wins are generated by superior defense. A ton of expert investing professions are similarly persuaded. That’s why so many financial advisors talk about playing defense. That’s why so many articles are written that outline X number of ways to practice defensive investing.
After reading the referenced Jaffe article and your post, I feel that both you guys are on the same exact page. The way to superior end wealth is to avoid the many inviting pitfalls that do substantial harm to portfolios.
You are in substantial agreement with the six common axioms that often misguide over-reactive investors, both the professionals and the amateurs. “Don’t just do something, just stand there” is not bad advice. Even famous speculator Jesse Livermore realized that “The big money is made by the sitting and the waiting, not the thinking”. He believed that only a fool trades frequently.
Oaktree’s Howard Marks sure advocates defensive investing in his “The Most Important Thing” white paper to clients. I referenced it recently. Here is the internal Link to my original post:
On page 2 of the Marks paper, he concludes that “The most important thing is investing defensively”. Later he proclaims that “If we avoid the losers, the winners will take care of themselves”.
Jaffe is simply restating ways to avoid wealth robbing mistakes. He did not invent these pitfalls. They have been recognized for decades and have been fully documented. However, the evidence suggests that the identification and warnings have not plugged the hole in the dam. These same mistakes, plus others, are made daily.
Just the other day, one of my sons worried that a large market drop was eminent because of the huge run-up in prices (number 2 in the Jaffe piece). Well, he just might be right, but the uncertainties are such that he just might be wrong. A total jump switch is almost never a good idea. Some modest incremental adjustment is likely more appropriate action given his feelings (intuition, gut, whatever).
I do not take issue with the cautionary articles that frequent our investment media. Do I benefit from them now? Not much, given my years of exposure to these warnings. But that is not the situation for many younger investors. Even reminders serve a purpose.
The referenced article is a reprint of an earlier March submittal from Jaffe. Perhaps his writing pen had just run dry momentarily and this is just a space filler. Perhaps MarketWatch feels that the article has exceptional merit, and warrants a reprint. Like all market decisions, we get to choose our own interpretation.
I can be succinct in response. I never claimed that any of your comments are "incorrect". You simply identified your agreement or disagreement with Jaffe's opinions with your own opinions.
I consistently respect everyone's market perspectives. Everyone is free to express an opinion. In this instance I surely did not challenge your analysis.
Probably what prompted me to post on this article was your identifying the 6 items as Jaffe straw men.
Jaffe did not invent them. They belong in the pantheon of investment folklore. I likely overreacted in that regard. Sorry if I touched a tender spot. That was not my purpose. I wanted to emphasize the primary importance of defensive investing, of controlling risk for downside protection.
1. "I can be succinct in response." A: Yes, and it would greatly facilitate dialogue if you would endeavor to be so more often.
2. "I never claimed that any of your comments are "incorrect". " A: Here's what you said: "You are in substantial agreement with the six common axioms that often misguide over-reactive investors ..."
3. "I consistently respect everyone's market perspectives." A: What one says and does are two different things. To profess respect - but than proceed to inundate a discussion with one's own doctrinaire perspective(s) may not be respect.
4. "Everyone is free to express an opinion." A: We agree here.
5. " In this instance I surely did not challenge your analysis." A: See #2 above.
6. "I likely overreacted ..." A: "Overreached" is a better word. My analysis did not address what steps (if any) an investor should take. It focused only on Jaffe's analytical approach.
7. "I wanted to emphasize the primary importance of defensive investing ..." A: Than we were not on the same page. There was no reason to address your remarks directly to me. My purpose was merely to highlight the superficial nature of the article, separating out the accurate statements from the false or exaggerated assumptions.
Added note: MJG, I am truly "befuddled" by your initial post and follow-up post in one respect. While the general tone seems supportive of my analysis, there's this sentence: "You are in substantial agreement with the six common axioms that often misguide over-reactive investors ...". Possibly that was a typographical or grammatical error on your part?
Obviously, I do not consider myself to be in agreement with "misguided" axioms. That sentence is the source of my ire and was the reason I had hoped you would point out some specifics.
Reading your agitated response clearly demonstrates that I was not too far off base when I commented that I was “Sorry if I touched a tender spot”. Again, based on your reply, I not only touched a tender, soft spot, I apparently violated it.
I suspect one reason for your highly charged response is at least partially connected to a Conformational bias. “A man hears what he wants to hear, and disregards the rest”. We all fall victim to this behavioral bias.
It certainly appears that you have concluded that our investment philosophies and practices differ somewhat. That’s likely true. Most of what appears on these discussions is simply market opinion. There are very few absolute rights or enduring wrongs when investing.
It seems you most strongly object to my MFO posting style. That’s presumptive on your part. But, you are welcome to your opinion. Others on MFO share that opinion, but others do not. I do not aim to please everyone.
Rather than addressing the substance of my posts, you challenge my form and format. You said: “To profess respect - and than proceed to inundate a discussion with your own doctrinaire perspective(s), superior intelligence and recommended reading list is not respect.”
Yes, I do write with purpose; I try to clearly state that purpose and my position. That’s what communication is all about. Words are powerful tools. I try very hard to assemble them to produce a lucid investment composition that is also entertaining.
I never, never claimed to be an expert. I frequently extol my amateur status and have freely admitted that I’m a self-educated investor with many shortcomings. I certainly never claimed “superior intelligence”. By the way, that’s a losers game since data shows that superior intelligence does not correlate positively with superior investment returns.
In my entire work-life, I competed for contracts with written proposals, so I do try to write with conviction and to document my positions. Hence, I provide statistics and references to buttress those positions. All this takes words and carefully crafted, logical sentences. Why some MFOers want to enforce a tight word limit escapes me. The solution is obvious: If the submittal is too long, ignore it.
For my entire FundAlarm and MFO posting period, I have stressed the benefits of a statistical understanding and the merits of Monte Carlo analyses under some conditions. This has angered some other participants, perhaps because of their mathematical limitations. But I remain committed to that purpose. If I have not yet won that battle, I surely have not yet lost it either.
“You have your way. I have my way. As for the right way, the correct way, and the only way, it does not exist.” That’s not me talking, it’s a quote from Friedrich Nietzsche.
Best Wishes.
ADDED COMMENT: Perhaps my comment that provoked your ire was too simplistic. I certainly never intended to coupled you with misguided axioms. You partially agreed with 4 of them. My misguided term referred to misled and/or misinformed investors. I may not agree with specific investors, but I still respect them.
And I really mean Best Wishes. I want all of us to succeed as investors.
@MJG: "For my entire FundAlarm and MFO posting period, I have stressed the benefits of a statistical understanding and the merits of Monte Carlo analyses under some conditions." Keep up the great work as you are a real gem to MFO Regards, Ted
"1. ‘It can’t go up forever,’ or ‘We are overdue for a downturn or a correction.’"
It cannot go up forever, but theoretically, it can go far further than anyone could expect. It really strongly appears to me that Central Banks are absolutely of the view that economic Winter has to be held back at all costs. I'm not saying that they will be successful, but they will push their theories until things get disorderly.
QE (and as I've noted, market didn't even have to go down much and there was a Fed governor the other day talking about the potential for more asset purchases - I thought the market would have to drop 15-20% for that conversation to even start) and ZIRP will not in and of themselves result in a sustainable recovery or fix underlying problems that need to be addressed.
This is not saying that stocks can go up forever, but there's a lot of variables and reflation or bust clearly seems to be the theme of central banks. Again, I'm not saying that stocks go to the moon, I'm simply saying that - for some reason - central banks this time around seem as if they are going to take this to the limit.
If it doesn't work, they'll never admit it - problems are "transitory" and theories don't work because there "wasn't enough". With those views, things will - I think - be taken to the limit until they get disorderly. What that looks like we'll have to see, but I still think this period ends badly. I think in some ways with ZIRP and QE this is the ultimate bubble and it would not surprise me if the global economy looked very different on the other side.
2. ‘Because the bull run has been long, any decline is going to be big, too.’ - This is a patently false premise. Duration of a bull market is not the determining factor in the severity of corrections. Valuations and economic conditions are the primary drivers.
Variables.
3. ‘The Federal Reserve is serious about raising rates now, and that’s going to end the rally.’ - The first part of his statement is probably true. The second part does not necessarily follow.
Who knows what the hell they want. You have different Fed governors saying different things every other day. The Fed can say that they want to raise rates, but they said that a couple of years ago, too. It gets to the point after several years where it looks bad that ZIRP is apparently still a need and does kind of go against their often overly optimistic economic projections. If that looks bad, imagine how it will look if they raise rates 50 basis points and then have to backtrack and lower rates again. That would be a clusterbleep of epic proportions.
The Fed is ultimately "data dependent", but there is a real, strong element of "baffle them with BS" that is becoming more and more apparent with each passing year. As far as I'm concerned, this is a MOPE - management of perspective economy and the Fed is trying to manage the market's view of the economy for as long as they continue to have credibility. You should not be trading based upon what Yellen, Bullard or anyone else says on any given day because guess what? They could very well say something entirely different two days later. And all the discussion about the Fed raising rates might meet resistance with economic reality.
4. ‘The government will screw this up.’ - This is a silly argument. Governments come and go depending on the outcome of elections.
Of course they will. As far as I'm concerned, a lot of what government does these days is simply "hot potato" - hope they can buy time by financial engineering and other garbage in order to get to hand things off to the next person. Or, they hope they can throw enough money at problems that they don't have to actually go through the difficult task of having to solve them. And hey, it's a lot more popular to throw money at problems than to make difficult decisions - until things fall apart again.
5. ‘The market is overpriced.’ - This is probably true in general. However, it's a straw-man so "all-inclusive" that it's easy to knock down.
Meh. It depends on so many factors.
6. ‘You can’t lose money in cash, so I will wait until the next downturn passes.’ -
Well, you can if the government decides that ZIRP and QE aren't enough and decide to step it up to things like NIRP and devaluation.
Thank you for carrying the heavy water to bring the discussion back on topic.
As always, I look forward to your informed submittals. You have a highly focused work ethic. I share many of the views that you so eloquently expressed in your post.
I’m not as concerned as you are over the Fed’s policy and timescale inactions, but I’m especially leery relative to our government’s intransigent interference with free markets. I’ll briefly expand, but these are big, big issues that demand much more attention.
Yes, the Fed exacerbates uncertainty by giving confusing signals. They double-down on the confusion factor by not doing what they hint at in a timely manner. But in the end, they finally execute some sort of plan in an incremental fashion. Historically, their actions have been both right and wrong at various times. Part of the good news is that their performance record is improving as their learning matures. The other part of the good news is their incremental action policy. It’s good practice to patiently wait to measure the impact of any action.
I’m a big advocate for a free marketplace with minimum government intervention (yes some is always necessary). Unfortunately, government policy directly and nonlinearly influences markets because of tight coupling. Those policies are often politically motivated. They are more influenced by short term election thinking that seeks political advantage. I am always suspicious.
Just add together government expenditure on both the State and National levels. It is a staggering fraction of GDP. My worry centers on efficiency issues. All government programs and initiatives do some good. My concern is just how much good is really accomplished. The funds are not targeted very well, and waste is frequently excessive. No surprise, I favor smaller, less intrusive government with fewer dollars to toss away.
MJG: Thank you for your added comment which I've copied & pasted below from your longer response above. I don't know when it was added, but don't recall seeing it during yesterday's dialogue:
- "ADDED COMMENT: Perhaps my comment that provoked your ire was too simplistic. I certainly never intended to coupled you with misguided axioms. You partially agreed with 4 of them. My misguided term referred to misled and/or misinformed investors. I may not agree with specific investors, but I still respect them." -
Sir, that's all I've been asking of you for the past couple of days - some clarification of whether you meant to "couple" me with the "misguided axioms." I am satisfied you did not.
Yes, our writing styles and methods of examining issues seem very different. Our investment philosophies, I suspect, are probably not as different as you might imagine.
A final point - I come here to enjoy and partake of the free speech and interplay of ideas that normally take place. I love honest debate. When I feel one party is not playing fairly, a "sore spot" as you so delicately phrase it is opened.
Never expected my humble musing on Jaffee would open such extensive or charged dialogue. Just some over coffee ramblings one morning. I'm glad you, Scott and others saw some value in addressing the article. This is my final comment on this thread. Thanks for clearing up my concern. Best wishes, hank
""1. ‘It can’t go up forever,’ or ‘We are overdue for a downturn or a correction.’"
It cannot go up forever, but theoretically, it can go far further than anyone could expect. It really strongly appears to me that Central Banks are absolutely of the view that economic Winter has to be held back at all costs. I'm not saying that they will be successful, but they will push their theories until things get disorderly.
QE (and as I've noted, market didn't even have to go down much and there was a Fed governor the other day talking about the potential for more asset purchases - I thought the market would have to drop 15-20% for that conversation to even start) and ZIRP will not in and of themselves result in a sustainable recovery or fix underlying problems that need to be addressed.
This is not saying that stocks can go up forever, but there's a lot of variables and reflation or bust clearly seems to be the theme of central banks. Again, I'm not saying that stocks go to the moon, I'm simply saying that - for some reason - central banks this time around seem as if they are going to take this to the limit.
If it doesn't work, they'll never admit it - problems are "transitory" and theories don't work because there "wasn't enough". With those views, things will - I think - be taken to the limit until they get disorderly. What that looks like we'll have to see, but I still think this period ends badly. I think in some ways with ZIRP and QE this is the ultimate bubble and it would not surprise me if the global economy looked very different on the other side."
Comments
1. ‘It can’t go up forever,’ or ‘We are overdue for a downturn or a correction.’ - The first part of this straw-man is true. The second part does not necessarily follow.
2. ‘Because the bull run has been long, any decline is going to be big, too.’ - This is a patently false premise. Duration of a bull market is not the determining factor in the severity of corrections. Valuations and economic conditions are the primary drivers.
3. ‘The Federal Reserve is serious about raising rates now, and that’s going to end the rally.’ - The first part of his statement is probably true. The second part does not necessarily follow.
4. ‘The government will screw this up.’ - This is a silly argument. Governments come and go depending on the outcome of elections.
5. ‘The market is overpriced.’ - This is probably true in general. However, it's a straw-man so "all-inclusive" that it's easy to knock down.
6. ‘You can’t lose money in cash, so I will wait until the next downturn passes.’ - True and false. The validity of the argument hinges on the meaning of "money." Cash won't lose "nominal" value. As Jaffe points out, it will lose purchasing power.
My conclusion? Jaffe has managed to shed little light on the question of whether or not you should make changes to your portfolio. Setting up a list of largely bogus assumptions ("straw-men") and than refuting them, serves little purpose IMHO.
The consensus wisdom from successful football coaches is that wins are generated by superior defense. A ton of expert investing professions are similarly persuaded. That’s why so many financial advisors talk about playing defense. That’s why so many articles are written that outline X number of ways to practice defensive investing.
After reading the referenced Jaffe article and your post, I feel that both you guys are on the same exact page. The way to superior end wealth is to avoid the many inviting pitfalls that do substantial harm to portfolios.
You are in substantial agreement with the six common axioms that often misguide over-reactive investors, both the professionals and the amateurs. “Don’t just do something, just stand there” is not bad advice. Even famous speculator Jesse Livermore realized that “The big money is made by the sitting and the waiting, not the thinking”. He believed that only a fool trades frequently.
Oaktree’s Howard Marks sure advocates defensive investing in his “The Most Important Thing” white paper to clients. I referenced it recently. Here is the internal Link to my original post:
http://www.mutualfundobserver.com/discuss/discussion/20477/placing-constraints-on-yourself
On page 2 of the Marks paper, he concludes that “The most important thing is investing defensively”. Later he proclaims that “If we avoid the losers, the winners will take care of themselves”.
Jaffe is simply restating ways to avoid wealth robbing mistakes. He did not invent these pitfalls. They have been recognized for decades and have been fully documented. However, the evidence suggests that the identification and warnings have not plugged the hole in the dam. These same mistakes, plus others, are made daily.
Just the other day, one of my sons worried that a large market drop was eminent because of the huge run-up in prices (number 2 in the Jaffe piece). Well, he just might be right, but the uncertainties are such that he just might be wrong. A total jump switch is almost never a good idea. Some modest incremental adjustment is likely more appropriate action given his feelings (intuition, gut, whatever).
I do not take issue with the cautionary articles that frequent our investment media. Do I benefit from them now? Not much, given my years of exposure to these warnings. But that is not the situation for many younger investors. Even reminders serve a purpose.
The referenced article is a reprint of an earlier March submittal from Jaffe. Perhaps his writing pen had just run dry momentarily and this is just a space filler. Perhaps MarketWatch feels that the article has exceptional merit, and warrants a reprint. Like all market decisions, we get to choose our own interpretation.
Best Wishes.
Please take some specific statements I made and point out succinctly in your own words why each is incorrect or "misguided" in your view.
Thanks.
Please try to keep your requests somewhat reasonable!
Thank you for reading my post.
I can be succinct in response. I never claimed that any of your comments are "incorrect". You simply identified your agreement or disagreement with Jaffe's opinions with your own opinions.
I consistently respect everyone's market perspectives. Everyone is free to express an opinion. In this instance I surely did not challenge your analysis.
Probably what prompted me to post on this article was your identifying the 6 items as Jaffe straw men.
Jaffe did not invent them. They belong in the pantheon of investment folklore. I likely overreacted in that regard. Sorry if I touched a tender spot. That was not my purpose. I wanted to emphasize the primary importance of defensive investing, of controlling risk for downside protection.
Best Wishes.
1. "I can be succinct in response."
A: Yes, and it would greatly facilitate dialogue if you would endeavor to be so more often.
2. "I never claimed that any of your comments are "incorrect". "
A: Here's what you said: "You are in substantial agreement with the six common axioms that often misguide over-reactive investors ..."
3. "I consistently respect everyone's market perspectives."
A: What one says and does are two different things. To profess respect - but than proceed to inundate a discussion with one's own doctrinaire perspective(s) may not be respect.
4. "Everyone is free to express an opinion."
A: We agree here.
5. " In this instance I surely did not challenge your analysis."
A: See #2 above.
6. "I likely overreacted ..."
A: "Overreached" is a better word. My analysis did not address what steps (if any) an investor should take. It focused only on Jaffe's analytical approach.
7. "I wanted to emphasize the primary importance of defensive investing ..."
A: Than we were not on the same page. There was no reason to address your remarks directly to me. My purpose was merely to highlight the superficial nature of the article, separating out the accurate statements from the false or exaggerated assumptions.
Thanks for your response.
Added note: MJG, I am truly "befuddled" by your initial post and follow-up post in one respect. While the general tone seems supportive of my analysis, there's this sentence: "You are in substantial agreement with the six common axioms that often misguide over-reactive investors ...". Possibly that was a typographical or grammatical error on your part?
Obviously, I do not consider myself to be in agreement with "misguided" axioms. That sentence is the source of my ire and was the reason I had hoped you would point out some specifics.
Thank you for replying.
Reading your agitated response clearly demonstrates that I was not too far off base when I commented that I was “Sorry if I touched a tender spot”. Again, based on your reply, I not only touched a tender, soft spot, I apparently violated it.
I suspect one reason for your highly charged response is at least partially connected to a Conformational bias. “A man hears what he wants to hear, and disregards the rest”. We all fall victim to this behavioral bias.
It certainly appears that you have concluded that our investment philosophies and practices differ somewhat. That’s likely true. Most of what appears on these discussions is simply market opinion. There are very few absolute rights or enduring wrongs when investing.
It seems you most strongly object to my MFO posting style. That’s presumptive on your part. But, you are welcome to your opinion. Others on MFO share that opinion, but others do not. I do not aim to please everyone.
Rather than addressing the substance of my posts, you challenge my form and format. You said: “To profess respect - and than proceed to inundate a discussion with your own doctrinaire perspective(s), superior intelligence and recommended reading list is not respect.”
Yes, I do write with purpose; I try to clearly state that purpose and my position. That’s what communication is all about. Words are powerful tools. I try very hard to assemble them to produce a lucid investment composition that is also entertaining.
I never, never claimed to be an expert. I frequently extol my amateur status and have freely admitted that I’m a self-educated investor with many shortcomings. I certainly never claimed “superior intelligence”. By the way, that’s a losers game since data shows that superior intelligence does not correlate positively with superior investment returns.
In my entire work-life, I competed for contracts with written proposals, so I do try to write with conviction and to document my positions. Hence, I provide statistics and references to buttress those positions. All this takes words and carefully crafted, logical sentences. Why some MFOers want to enforce a tight word limit escapes me. The solution is obvious: If the submittal is too long, ignore it.
For my entire FundAlarm and MFO posting period, I have stressed the benefits of a statistical understanding and the merits of Monte Carlo analyses under some conditions. This has angered some other participants, perhaps because of their mathematical limitations. But I remain committed to that purpose. If I have not yet won that battle, I surely have not yet lost it either.
“You have your way. I have my way. As for the right way, the correct way, and the only way, it does not exist.” That’s not me talking, it’s a quote from Friedrich Nietzsche.
Best Wishes.
ADDED COMMENT: Perhaps my comment that provoked your ire was too simplistic. I certainly never intended to coupled you with misguided axioms. You partially agreed with 4 of them. My misguided term referred to misled and/or misinformed investors. I may not agree with specific investors, but I still respect them.
And I really mean Best Wishes. I want all of us to succeed as investors.
Regards,
Ted
"You are in substantial agreement with the six common axioms that often misguide over-reactive investors ..."
Yes, when someone makes a sweeping allegation without offering specifics, I don't react well.
It cannot go up forever, but theoretically, it can go far further than anyone could expect. It really strongly appears to me that Central Banks are absolutely of the view that economic Winter has to be held back at all costs. I'm not saying that they will be successful, but they will push their theories until things get disorderly.
QE (and as I've noted, market didn't even have to go down much and there was a Fed governor the other day talking about the potential for more asset purchases - I thought the market would have to drop 15-20% for that conversation to even start) and ZIRP will not in and of themselves result in a sustainable recovery or fix underlying problems that need to be addressed.
This is not saying that stocks can go up forever, but there's a lot of variables and reflation or bust clearly seems to be the theme of central banks. Again, I'm not saying that stocks go to the moon, I'm simply saying that - for some reason - central banks this time around seem as if they are going to take this to the limit.
If it doesn't work, they'll never admit it - problems are "transitory" and theories don't work because there "wasn't enough". With those views, things will - I think - be taken to the limit until they get disorderly. What that looks like we'll have to see, but I still think this period ends badly. I think in some ways with ZIRP and QE this is the ultimate bubble and it would not surprise me if the global economy looked very different on the other side.
2. ‘Because the bull run has been long, any decline is going to be big, too.’ - This is a patently false premise. Duration of a bull market is not the determining factor in the severity of corrections. Valuations and economic conditions are the primary drivers.
Variables.
3. ‘The Federal Reserve is serious about raising rates now, and that’s going to end the rally.’ - The first part of his statement is probably true. The second part does not necessarily follow.
Who knows what the hell they want. You have different Fed governors saying different things every other day. The Fed can say that they want to raise rates, but they said that a couple of years ago, too. It gets to the point after several years where it looks bad that ZIRP is apparently still a need and does kind of go against their often overly optimistic economic projections. If that looks bad, imagine how it will look if they raise rates 50 basis points and then have to backtrack and lower rates again. That would be a clusterbleep of epic proportions.
The Fed is ultimately "data dependent", but there is a real, strong element of "baffle them with BS" that is becoming more and more apparent with each passing year. As far as I'm concerned, this is a MOPE - management of perspective economy and the Fed is trying to manage the market's view of the economy for as long as they continue to have credibility. You should not be trading based upon what Yellen, Bullard or anyone else says on any given day because guess what? They could very well say something entirely different two days later. And all the discussion about the Fed raising rates might meet resistance with economic reality.
4. ‘The government will screw this up.’ - This is a silly argument. Governments come and go depending on the outcome of elections.
Of course they will. As far as I'm concerned, a lot of what government does these days is simply "hot potato" - hope they can buy time by financial engineering and other garbage in order to get to hand things off to the next person. Or, they hope they can throw enough money at problems that they don't have to actually go through the difficult task of having to solve them. And hey, it's a lot more popular to throw money at problems than to make difficult decisions - until things fall apart again.
5. ‘The market is overpriced.’ - This is probably true in general. However, it's a straw-man so "all-inclusive" that it's easy to knock down.
Meh. It depends on so many factors.
6. ‘You can’t lose money in cash, so I will wait until the next downturn passes.’ -
Well, you can if the government decides that ZIRP and QE aren't enough and decide to step it up to things like NIRP and devaluation.
Thank you for carrying the heavy water to bring the discussion back on topic.
As always, I look forward to your informed submittals. You have a highly focused work ethic. I share many of the views that you so eloquently expressed in your post.
I’m not as concerned as you are over the Fed’s policy and timescale inactions, but I’m especially leery relative to our government’s intransigent interference with free markets. I’ll briefly expand, but these are big, big issues that demand much more attention.
Yes, the Fed exacerbates uncertainty by giving confusing signals. They double-down on the confusion factor by not doing what they hint at in a timely manner. But in the end, they finally execute some sort of plan in an incremental fashion. Historically, their actions have been both right and wrong at various times. Part of the good news is that their performance record is improving as their learning matures. The other part of the good news is their incremental action policy. It’s good practice to patiently wait to measure the impact of any action.
I’m a big advocate for a free marketplace with minimum government intervention (yes some is always necessary). Unfortunately, government policy directly and nonlinearly influences markets because of tight coupling. Those policies are often politically motivated. They are more influenced by short term election thinking that seeks political advantage. I am always suspicious.
Just add together government expenditure on both the State and National levels. It is a staggering fraction of GDP. My worry centers on efficiency issues. All government programs and initiatives do some good. My concern is just how much good is really accomplished. The funds are not targeted very well, and waste is frequently excessive. No surprise, I favor smaller, less intrusive government with fewer dollars to toss away.
Thanks again for your intervention.
Best Wishes.
-
"ADDED COMMENT: Perhaps my comment that provoked your ire was too simplistic. I certainly never intended to coupled you with misguided axioms. You partially agreed with 4 of them. My misguided term referred to misled and/or misinformed investors. I may not agree with specific investors, but I still respect them."
-
Sir, that's all I've been asking of you for the past couple of days - some clarification of whether you meant to "couple" me with the "misguided axioms." I am satisfied you did not.
Yes, our writing styles and methods of examining issues seem very different. Our investment philosophies, I suspect, are probably not as different as you might imagine.
A final point - I come here to enjoy and partake of the free speech and interplay of ideas that normally take place. I love honest debate. When I feel one party is not playing fairly, a "sore spot" as you so delicately phrase it is opened.
Never expected my humble musing on Jaffee would open such extensive or charged dialogue. Just some over coffee ramblings one morning. I'm glad you, Scott and others saw some value in addressing the article. This is my final comment on this thread. Thanks for clearing up my concern. Best wishes, hank
It cannot go up forever, but theoretically, it can go far further than anyone could expect. It really strongly appears to me that Central Banks are absolutely of the view that economic Winter has to be held back at all costs. I'm not saying that they will be successful, but they will push their theories until things get disorderly.
QE (and as I've noted, market didn't even have to go down much and there was a Fed governor the other day talking about the potential for more asset purchases - I thought the market would have to drop 15-20% for that conversation to even start) and ZIRP will not in and of themselves result in a sustainable recovery or fix underlying problems that need to be addressed.
This is not saying that stocks can go up forever, but there's a lot of variables and reflation or bust clearly seems to be the theme of central banks. Again, I'm not saying that stocks go to the moon, I'm simply saying that - for some reason - central banks this time around seem as if they are going to take this to the limit.
If it doesn't work, they'll never admit it - problems are "transitory" and theories don't work because there "wasn't enough". With those views, things will - I think - be taken to the limit until they get disorderly. What that looks like we'll have to see, but I still think this period ends badly. I think in some ways with ZIRP and QE this is the ultimate bubble and it would not surprise me if the global economy looked very different on the other side."
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http://www.zerohedge.com/news/2015-04-26/boston-fed-admits-there-no-exit-suggests-qe-become-normal-monetary-policy
"Boston Fed Admits There Is No Exit, Suggests QE Become "Normal Monetary Policy"
Well, it has been awhile.....................
Debt Clock