Investing megathread extravaganza

[DaFace]

A place to talk about investing stuff.

[Rain Man]

Originally Posted by Coach

Well, the good news is that it has recovered since the 2008 crash, but the question begs, will it now continue to climb steady? Will it ever reach the peak that it once reached in 1989? Or will it crash again?

It's easy to argue that 1989 was a bubble, but even if you eliminate that, it's essentially been stagnant since the early 1990s.

I don't get it. It's not like fly-ridden people are starving in the streets. You'd think that even stagnation would produce a mild gain every year just due to inflation. I keep pondering buying in on Japan, but after 20 years, what's changing for the positive? I'm mystified.

[Coach]

Originally Posted by Rain Man

It's easy to argue that 1989 was a bubble, but even if you eliminate that, it's essentially been stagnant since the early 1990s.

I don't get it. It's not like fly-ridden people are starving in the streets. You'd think that even stagnation would produce a mild gain every year just due to inflation. I keep pondering buying in on Japan, but after 20 years, what's changing for the positive? I'm mystified.

I think perhaps the Japanese asset price bubble that popped in 1990-1992, and they either put effective tight controls on it, or is skittish to even consider it again?

Just reading it over on Wikipedia. I know Wikipedia isn't exactly a greatest source, but it's something to look at.

https://en.wikipedia.org/wiki/Japane...t_price_bubble

[Buehler445]

Originally Posted by Rain Man

It's easy to argue that 1989 was a bubble, but even if you eliminate that, it's essentially been stagnant since the early 1990s.

I don't get it. It's not like fly-ridden people are starving in the streets. You'd think that even stagnation would produce a mild gain every year just due to inflation. I keep pondering buying in on Japan, but after 20 years, what's changing for the positive? I'm mystified.

My understanding (I AM NOT AN EXPERT and college was A LONG time ago) was that the Japanese tried to fight the crash by lowering interest rates. It failed to stimulate the economy and would wreck it if they raised it - so it sits.

It worries me about the US economy because our interest rate has been in the crapper largely since 9/11. That's gaining on 2 decades.

EDIT: Looks like they raised it up in 06, but it has been in essentially 0 since 08 so a decade. That's a long time. https://fred.stlouisfed.org/series/FEDFUNDS

[Rain Man]

Originally Posted by Coach

I think perhaps the Japanese asset price bubble that popped in 1990-1992, and they either put effective tight controls on it, or is skittish to even consider it again?

Just reading it over on Wikipedia. I know Wikipedia isn't exactly a greatest source, but it's something to look at.

https://en.wikipedia.org/wiki/Japane...t_price_bubble

Originally Posted by Buehler445

My understanding (I AM NOT AN EXPERT and college was A LONG time ago) was that the Japanese tried to fight the crash by lowering interest rates. It failed to stimulate the economy and would wreck it if they raised it - so it sits.

It worries me about the US economy because our interest rate has been in the crapper largely since 9/11. That's gaining on 2 decades.

EDIT: Looks like they raised it up in 06, but it has been in essentially 0 since 08 so a decade. That's a long time. https://fred.stlouisfed.org/series/FEDFUNDS

I definitely didn't take the right kinds of college courses to understand this stuff. Based on what you said, it sounds like they shifted the economic transmission into first gear and then the gearshift knob came off. So I wonder what has to happen for it to start moving again - it sounds like it has to come from something other than policy.

[Cornstock]

Originally Posted by Rain Man

It's easy to argue that 1989 was a bubble, but even if you eliminate that, it's essentially been stagnant since the early 1990s.

I don't get it. It's not like fly-ridden people are starving in the streets. You'd think that even stagnation would produce a mild gain every year just due to inflation. I keep pondering buying in on Japan, but after 20 years, what's changing for the positive? I'm mystified.

While Modern Portfolio Theory would suggest that a well rounded portfolio would consist of I holdings, the fact that both Germany and Japan have flirted with negative interest rate bonds in the past few years ( I believe the Bund in fact has had a few terms with negative returns) speaks to their central bank's outlook on inflation. If there is no inflation occurring, you won't be able to capture the gains on their equities either.

Ultimately it depends on your risk tolerance, objectives, and your time until retirement. If you are in your 20s or early 30s and self directing, with a taste for a bit of risk, I would forgo the I fund and do US equities. The large cap stuff will capture inflation and do well in a bull market, while the small cap will grab you some nice gains theoretically.

I have a taste for throwing in some fixed income, or at least equities that pay strong dividends (check out VYM by Vanguard). When you reinvest proceeds during a market downturn you can strongly improve your dollar cost average over the long turn. VYM has the added benefit of performing well in a bull market as well because it's all large cap.

If y'all want, I can dig up some nice textbook type info why this is a good idea in your portfolio.

[Buehler445]

Originally Posted by Rain Man

I definitely didn't take the right kinds of college courses to understand this stuff. Based on what you said, it sounds like they shifted the economic transmission into first gear and then the gearshift knob came off. So I wonder what has to happen for it to start moving again - it sounds like it has to come from something other than policy.

You've got it backwards. They shifted to high gear and burned up the clutch.

Theory is if there are low interest rates industry will expand because money is cheap. Unemployment will fall GDP will rise. Extended periods of growth leads to inflation. Raising interest rates will cause businesses to slow expansion and cook off the economy and wait for the market to catch up with GDP growth.

There are a series of interrelated curves (labor, money supply, GDP, and some other shit) that proof it all out but that is the 30,000 ft overview of intermediate macroeconomics.

So what Japan did was try to spur growth through interest rates and it didn't do anything. So they've fired their bullets.

Again, I'm not an expert, but I'd postulate that what happened here was interest got cheap and business did things other than directly increase production

1. Sit on the cash (see apple)
2. Invest in automation - not sending money home, wrecking the velocity of money
3. Invest overseas - taking it out of the equation completely thus thoroughly wrecking the velocity of money.

[Rain Man]

Originally Posted by Cornstock

I have a taste for throwing in some fixed income, or at least equities that pay strong dividends (check out VYM by Vanguard). When you reinvest proceeds during a market downturn you can strongly improve your dollar cost average over the long turn. VYM has the added benefit of performing well in a bull market as well because it's all large cap.

If y'all want, I can dig up some nice textbook type info why this is a good idea in your portfolio.

What are some examples of good fixed-income holdings? I've got this image that they all pay 1 percent or so, so I avoid them, but maybe I'm wrong.

I've put a bit of money into some things like REITs and holding companies that I find interesting. You don't really expect the stock to appreciate, but they throw off huge dividends in the 5 to 8 percent range. I've been treating them kind of like fixed-income, even though I know they're not.

[Cornstock]

Originally Posted by Buehler445

You've got it backwards. They shifted to high gear and burned up the clutch.

Theory is if there are low interest rates industry will expand because money is cheap. Unemployment will fall GDP will rise. Extended periods of growth leads to inflation. Raising interest rates will cause businesses to slow expansion and cook off the economy and wait for the market to catch up with GDP growth.

There are a series of interrelated curves (labor, money supply, GDP, and some other shit) that proof it all out but that is the 30,000 ft overview of intermediate macroeconomics.

So what Japan did was try to spur growth through interest rates and it didn't do anything. So they've fired their bullets.

Again, I'm not an expert, but I'd postulate that what happened here was interest got cheap and business did things other than directly increase production

1. Sit on the cash (see apple)
2. Invest in automation - not sending money home, wrecking the velocity of money
3. Invest overseas - taking it out of the equation completely thus thoroughly wrecking the velocity of money.

Right now the economic trend has been Quantitative Easing (QE) to stimulate the economy. This involves the central bank's buying Mortgage Backed Securities to infuse the market with cash. This isn't a bad idea, but at least in the US, the consequence has run into a political obstacle.

With all of the capital requirement changes that occurred after 2008, banks are required to keep more cash on hand in case of emergencies. Their Tier 1 Capital Ratios for small banks was 5.5-7%, and for large banks it was even less. Now they are required to maintain over 10%.

What this means is that a huge bank with 10s of billions of dollars of assets are no longer allowed to lend those 10s of billions. It is required to be dead money. This added to more stringent requirements in lending, so banks can only lend to superbly qualified businesses/individuals makes for a disaster that was really unforseen.

Money multiplier theory says that a dollar lent can be multiplied something like 27 times. So if a bank is required to keep 30 billion in dead money, this would have otherwise been an 810 billion dollar infusion into the economy, which would have spurred economic growth. (Imagine your small business getting a small chunk if that).

So the banks are taking the money that is being infused by QE and putting it straight towards their reserves, instead of injecting it into the economy. This is why no one has seen any real effect of QE until recently, now that the reserves are topped off and in compliance.

I know no one likes big banks, but they are an integral part of our economy, and by handcuffing them it hurts everyone. But Bernie and the like don't recognize this and just want more regulations. They need to be loosened up so the banks are allowed to lend.

I know this is kind of long, but it may be the first time anyone has explained to you WHY these new bank regulations are so bad, rather than just saying that big banks are bad and greedy and they deserve to be punished.

[Cornstock]

Originally Posted by Rain Man

What are some examples of good fixed-income holdings? I've got this image that they all pay 1 percent or so, so I avoid them, but maybe I'm wrong.

I've put a bit of money into some things like REITs and holding companies that I find interesting. You don't really expect the stock to appreciate, but they throw off huge dividends in the 5 to 8 percent range. I've been treating them kind of like fixed-income, even though I know they're not.

I don't currently hold any but I'll find some good ones tomorrow. I just blew my load on that last post so I'm done for the night. Typically you'll want medium term stuff. They return a bit higher than 1%.

[eDave]

Originally Posted by Rain Man

What are some examples of good fixed-income holdings? I've got this image that they all pay 1 percent or so, so I avoid them, but maybe I'm wrong.

I've put a bit of money into some things like REITs and holding companies that I find interesting. You don't really expect the stock to appreciate, but they throw off huge dividends in the 5 to 8 percent range. I've been treating them kind of like fixed-income, even though I know they're not.

https://fixedincome.fidelity.com/ftg...onds|municipal

[Cornstock]

Japan has other options besides QE. It's a Milton Friedman concept known as Helicopter Money. Good article about it here: http://www.economist.com/news/financ...out-cash-money

[Buehler445]

Originally Posted by Cornstock

Right now the economic trend has been Quantitative Easing (QE) to stimulate the economy. This involves the central bank's buying Mortgage Backed Securities to infuse the market with cash. This isn't a bad idea, but at least in the US, the consequence has run into a political obstacle.

With all of the capital requirement changes that occurred after 2008, banks are required to keep more cash on hand in case of emergencies. Their Tier 1 Capital Ratios for small banks was 5.5-7%, and for large banks it was even less. Now they are required to maintain over 10%.

What this means is that a huge bank with 10s of billions of dollars of assets are no longer allowed to lend those 10s of billions. It is required to be dead money. This added to more stringent requirements in lending, so banks can only lend to superbly qualified businesses/individuals makes for a disaster that was really unforseen.

Money multiplier theory says that a dollar lent can be multiplied something like 27 times. So if a bank is required to keep 30 billion in dead money, this would have otherwise been an 810 billion dollar infusion into the economy, which would have spurred economic growth. (Imagine your small business getting a small chunk if that).

So the banks are taking the money that is being infused by QE and putting it straight towards their reserves, instead of injecting it into the economy. This is why no one has seen any real effect of QE until recently, now that the reserves are topped off and in compliance.

I know no one likes big banks, but they are an integral part of our economy, and by handcuffing them it hurts everyone. But Bernie and the like don't recognize this and just want more regulations. They need to be loosened up so the banks are allowed to lend.

I know this is kind of long, but it may be the first time anyone has explained to you WHY these new bank regulations are so bad, rather than just saying that big banks are bad and greedy and they deserve to be punished.

Really good post.

I'm not informed on banking enough to know what the reserve requirements should be, but I know the regulations are hot garbage. At least the ones that trickled down to my local bank, which I understand are markedly different than commercial banks.

[ChiliConCarnage]

Originally Posted by Rain Man

Originally Posted by Buehler445

You've got it backwards. They shifted to high gear and burned up the clutch.

Actually, BoJ was more concerned with real estate prices continuing to increase and raised interest rates during the equities crash. It didn't work and the real estate market crashed as well. Then they dumped interest rates because they'd gone deflationary but it ended up a spiral w/ people sitting on cash.

They were starting to raise rates again in the 2000's until we crapped everything out globally.

I'm guessing growth from some of their asian neighbors like S. Korea hurt their economy too.

All of the developed nations are struggling w/ birth rates. Most of them are squeaking out some growth with the help of immigration but Japan doesn't have a great culture for that..
Their population peaked in 2007/2008 and is shrinking so uh.. that's not gonna help going forward. I think I saw something that unless their demographics change somehow their population was going to shrink 40% in the next 50 years or so.

[RunKC]

I've been thinking that a compound interest account needs to be started ASAP but I'm not sure what to look for.

Any tips on the best accounts to search for? Best rates?

If I missed this, let me know the post # to start reading. Thanks

[lewdog]

Originally Posted by RunKC

I've been thinking that a compound interest account needs to be started ASAP but I'm not sure what to look for.

Any tips on the best accounts to search for? Best rates?

If I missed this, let me know the post # to start reading. Thanks

There isn't something called a compound interest account.

Compound interest just means interest on interest gained due to the variable of time. It's why those who invest a little bit of money early in life, can have very large sums later while placing less cash in accounts, than someone who starts later in life but places greater capital in account.

That can be accomplished through a variety of devices. Stocks, bonds, basic savings account, CDs. What are you looking to do?