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Ben Carlson: We’ve Just Witnessed One Of The Least Volatile Economic Recoveries On Record

FYI: It’s now been more than seven years since the official end of the last recession. In that time investors have been inundated with double dip recession calls, tales of increased uncertainty and warnings of higher volatility. Everyone was so shell-shocked by the Great Recession that it became easy to assume that catastrophe and economic upheaval were here to stay. Instead, we’ve actually had a relatively calm economic environment for some time now.
Regards,
Ted
http://awealthofcommonsense.com/2016/07/weve-just-witnessed-one-of-the-least-volatile-economic-recoveries-on-record/

Comments

  • As Liz Ann Sonders has said, "This is most unloved bull market in history." If future returns are as muted as some believe they will be, there are a lot of folks who are in trouble. Most of them bailed in late 2008 or early 2009, at the worst possible time, and have been on the sidelines "waiting". They will probably never recover their losses.

    On the other hand, this is the weakest economic recovery that I can remember. While the market has had a bull run, the economy has been puny at best. Folks can argue who or what is at fault, what should or should not have been done, but we can all agree the majority of new jobs have not been the quality that we have had in the past. At the same time, we have a new generation of young people who are saddled with large debt, some of their own, but a lot inherited from the government spending of the last 12+ years.

    Debt can crush families. While we cannot control what we inherit from the government, we can control our own. Pre-retirees would do well to get rid of debt. Who knows what lies ahead for pensions Social Security, and Medicare.
  • edited July 2016
    The one overriding financial principal of my life has been to have no debt: to be free of any possible control by any other human being. Fortunately my wife feels the same way. When we needed an auto or other expensive item we saved until we could pay cash.

    The one exception was the mortgage financing of our San Francisco home (at 8.5%!). That mortgage was originally taken out with a friendly and cooperative local bank, which years later was acquired by another decent regional bank. That bank, unfortunately, was later absorbed by Bank of America.

    The effects were almost immediate, with a list of new demands, restrictions, and requirements from BofA. Several weeks after that we paid off the remaining balance. The attitude and personality of the new branch manager were exactly what you would expect from BofA. While it was a pleasure to inform her of what she could do with her mortgage and her bank, it was also evident that she really couldn't care less.

    It's no coincidence that BofA has had more difficulty than most of the large banks recovering from the housing fiasco. They absolutely made their own bed. Personally, I hope that they die in it.

  • At one point just after the financial crisis, BOA had our checking, credit card, and mortgage accounts. Scary. Only checking now and that's because it's the same account we've had,originally with a local bank, since the early 70's. Know the acct number by a heart.
  • We have had saving and checking accounts with BOA. Luckily we found a local federal credit union that can handle majority of our needs. We moved on from BOA almost 20 years ago.
    Debt can crush families. While we cannot control what we inherit from the government, we can control our own. Pre-retirees would do well to get rid of debt. Who knows what lies ahead for pensions Social Security, and Medicare.
    How true! We paid off our house awhile back, and live with our means. Often we live below our means in order to invest for our kids 529 college funds. Certainly we don't want our kids to burden with unnecessary college debts.
  • MJG
    edited July 2016
    Hi Guys,

    Recessions have become a more rare phenomenon since the Great Depression as we evolved from an emerging country to a mature country status.

    Not only have recessions become more rare, they are also less devastating to the GDP growth rate, they are shallow, and the recovery period has shortened. Our economy is more robust to these distortions, and we have learned better how to handle them. That’s all good news from an historical perspective.

    Yet the doomsday forecasters proliferate. Regardless of a dismal right/wrong forecasting record, these folks receive unwarranted attention and even inappropriate adulation. Of course, after some time and countless forecasts, a prediction will luckily be correct and they will seem prescient. In reality, it was just the law of averages rescuing them.

    A ton of these forecasters, and many investors also, believe in what statisticians call “the gambler’s fallacy”. They believe that just because something has not happened in a long time, that event is now more likely to take place. That’s faulty thinking because the probabilities haven’t changed whatsoever.

    The fact that our current rather modest Bull stock market has aged by another day does not change the odds of yet another continuing day for that Bull market. Age has little impact; it’s the basic economy, and the perception of the economy that matters most.

    Forecasters come and go. Today’s golden hero is often tarnished when future forecasts fail. Forecasting models are often eloquent and sophisticated with many candidate signaling parameters in their formulas. These parameters typically yield contradictory signs so that uncertainty exists in the interpretations and in the imperfect models themselves.

    A regression to the mean is a natural happening in the economic and stock market worlds. Nothing can go directionally unrestrained forever. That’s even against the fundamental laws of physics. But nobody can accurately or consistently predict when a change will take effect. The forecasting Gods have clay feet. Phil Tetlock’s multiyear research demonstrates that negative outcome time and time again. Forecasters fail the persistency test.

    My approach is simple. I ignore the doomsday forecasters. These guys have zero impact on my portfolio. My portfolio asset allocation reflects my risk tolerance, my timetable, and my anticipated future needs. Forecasts macht nichts (German for mean nothing),

    The US population will likely continue to grow at a roughly 1% annual rate, and the GDP growth rate will likely remain in the 2% to 3% range for the near future. Market returns will reflect those two driving mechanisms, not for any single year, but for a decade on average. The longer timetable is a more proper framework.

    Our economy is huge and fairly stable. Consequently it has much inertia. It takes a major event to disrupt it. As investors, we should fully recognize that characteristic which tends to promote a stay-the-course investment policy.

    Best Wishes.
  • If large cap companies have indeed been engaging in "financial alchemy" ( using "cash" piles or taking on debt in order to buy back shares and prop up share prices while laying employees off because of reduced incentive to innovate / spend on R&D ), then diversifying portfolios with domestic small cap and emerging small cap may be a prudent step as small companies are more apt to grow earnings though innovation and R&D, and not engage in this "financialization".
    "Economic growth" ( as represented by large companies ) may just be a "shell" game at this point.
  • MJG
    edited July 2016
    Hi jstr,

    Indeed a lot has changed over the decades with our largest US companies. After WW II, the smoke stack industries dominated in the Northeast and in Detroit. Today the workforce is dominated by computer and service related industries, and Detroit is not doing well. The West coast has prospered. Wall-Mart is our largest employer by a huge margin while the auto industry is a shadow of its old self.

    Those of us who were able and willing to pursue the hiring trails did okay. The others suffered.

    My wife and I joined the migrants who chased the money route. We moved from the mid-Atlantic states to California. We packed ourselves and all we owned in an old Ford. It took 4 days and 2 flat tires. It was an easy task and a great decision. Not everyone could take that risk.

    Good decisions matter but so does luck. Randomness does seem to contribute a heavy hand in determining our life outcomes. That's the way it is. I'm getting far too off-topic and it's far too late, so I'll just stop now.

    Best Wishes.
  • At age 69, if I could refi my BoA mortgage for 40y to replace the 26y remaining, still in its 3%-3.5% range, I would do it in a jiffy.
    Just applied for a BoA heloc supposedly (meaning if I can get it) at 2.67% fixed, except for scaling with fed funds rate.
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