Today Market

General inflation is of not much relevancy to individual consumer :crazy_face: Is just a number for economist to assess and manage the economy. What is relevant are your expenses. Are your daily expenses as a percentage of your net worth getting smaller? Are your investment (and net worth) as a percentage of the future dream home (or expected expenses for your children education or a Tesla) increasing? Yes and Yes mean you are doing well :slight_smile:

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This is the boldest statement yet on this forum. The other one was that the bay area housing prices have no relation to rents. Please give me a break!! I expect better on this forum.

As I explained earlier, excessive money printing is causing inflation and even worse, it is causing huge economic swings. And worst, people have begun seeing the stock market as a gauge of economic activity.

Inflation hurts savers badly because it reduces the purchasing power of their savings over time. And to protect their money, the savers are forced to invest in stock market that is even more risky. Either they spent a significant part of their day in managing investment, or they leave their savings at mercy of SP500 indexed fund that barely returns 2-3 percent after adjusting for inflation. And even then they may be forced to see their principal cut to 2/3 or half in downturn, and may not be able to recover the principle for many years.

Expense/NetWorth is not a good way to look for a small passive investor due to returns being small after inflation , and risk of loosing big on principle being huge. The net worth rises up and down with the market.

The myths living in this forum:

  1. Inflation is good.
  2. Bay area home prices have no relation to rents
  3. Economy has to be managed (and hence inflation is desired ). Actually, governments need inflation so that they can run deficit and monetize the debts.

The third one also goes against the idea of free market capitalism.

Don’t repeat well documented statements/ observations/ arguments/ concepts by academics and news articles. Also no need to repeat content of past posts.

First thing first, why do you want to save $ or invest?

Is expenses/ savings sound like the economist’s term, purchasing power? Personal purchasing power?

Thought experiment: Say the food component of the general inflation index comprises beef, potatoes and carrots, and you eat only rice and pork. Now, pork prices had doubled but inflation is low 2%. Ok with the low inflation?

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Skeptics will point to the S&P 500′s price/sales ratio and enterprise value/cash flow multiples, which are indeed back to levels last seen near the year-2000 peak. Yet the reason they are more elevated than profit-based multiples is companies have higher profit margins (in part due to the mix of companies in the index) and interest rates and taxes are structurally lower.

More good days ahead :money_mouth_face:

What do you think is a good investment then? It seems nothing has a high enough return with low enough risk for you. Has there ever been a period in history with the economic conditions you want? It’s way more productive to learn the game and be good at it then trying to convince the world to play a different game.

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Read in a trusted source “that investor skepticism in stock market is high “. So, among other indicators to evaluate the stock market overvaluation, this factor isn’t one to worry about. Point is, savers or general population aren’t overly invested in the stock market yet. My guess is it could be due the psychological effect of 2008 crash.

What was the time period? I saw investor sentiment of millionaires flipped from pretty bearish in Q3 to very bullish in Q4. I was surprised to see such a quick move.

People mix the words investment and speculation frequently on this forum and elsewhere in the financial media.

An investment should (at least try to)
(1) protect the principle
(2) pay a definte return consemurate with risk taken.

Specualation on the other hand involves spending on unproven idea in a hope of significant return. Both principle and return are at risk.

@hanera asked
First thing first, why do you want to save $ or invest?

Can I ask a counter question? Can I just be saver and not be an investor? Should I forced to invest when I do not have inclination, time, or aptitude to be an investor? Or should I be forced to buy a SP500 index fund with historic return of 2-4% and with chances of seeing your principla fall to half and never recover or recover after long time.

Can you define for me who is a saver and who is an investor?
If you can define a saver, then you can also answer the
question, should every saver be an investor also?

@marcus335
What do you think is a good investment then? It seems nothing has a high enough return with low enough risk for you. Has there ever been a period in history with the economic conditions you want? It’s way more productive to learn the game and be good at it then trying to convince the world to play a different game.

I do not think there is an investment that is not risky.
But, the quesiton even more fundamental is should one be
forced to become an investor?

Creation of FED has led to deterioration of money in US. Now you might ask what is money?
The classic definiton of money is anything (could be a pebble) that provides these four functions:

  1. medium of exchange
  2. measure of value
  3. accepted universally
  4. store of value

Do you think US Dollar or any known currency passes this test of money? Basically, the FED has killed the 2 and the 4 function of money. The USD does not measure or store value any more. That is why people are forced to invest. So, to answer your question, the period before creation of fed (1914) or even before decoupling of gold with dollars (1971) , people who did not want to be a investor did not have to be an investor. The money saved was good for hundereds of years because it did not loose value (purchasing power) the way it did after these events.

Too academic for me. I was terrible in macroeconomic, finance, and economic classes.

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It should be referring to the period Dec 2019 and earlier.

Exact words are below:

Importantly, investor euphoria, one of the most dangerous signs of investor sentiment, remains relatively dormant. This bull market has climbed the wall of worry amidst a healthy level of investor skepticism.

@pandeyathotmail I really don’t care whether you are an investor or a saver. My question is what do you want to do with the $ you saved or invested. So it doesn’t matter you are an investor or a saver.

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Have you studied the period before 1914? Do you realize how much economic instability there was?

It’s pretty illogical to expect to save, take zero risks, and earn a return above inflation. Economically, how would that return even be generated?

It sounds like you just want to save money, not invest in stocks, bonds, or anything then have it retain the same purchasing power 10 years from now. That’s literally never happened.

I know you’re obsessed with the buffet price, but Americans are spending a record low percent of their income on food. You’re indexing your measure of inflation to a small percent of household spend which is declining in percentage terms.

Please tell about the period before 1914 that we should know.

Turbulence ahead. Textbook example of black swan.

my 2 cents:

Even though history repeats, understanding 1929 or 1914…or even 1945 or 1970…may provide just some hints, but how much is that useful to current? Very less.

For better investment.

Assume current environment is good and recession is unknown period.

Fundamentals are key, public available (Refinitiv) consensus estimate is already priced-in.

Filter your best 20 companies (forget all other companies)
Read fundamentals and choose the best, invest a small portion
See if your analysis is correct with actual results
If right, continue,
if not, drop that company and go on to next

Repeat this exercise. You will be master over an year.

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Market makers already hedged with spy puts to drop the market as it was excessively inflated.
Coronavirus is a scapegoat to bring down the market. Market will stabilize after some time, but at present ,market makers break the retail investors with Coronavirus sentiments.

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When you offer something to read, please guide what conclusion should I be drawing or what is the point you are trying to make and how it relates to the topic at hand. Boom and Bust are part of economic cycles and they have been like this forever. Economic contraction and expansion take place in cyclic way as the bad investments made during expansion phase have to be shaken out. These cycles did not hurt savers as their money was more valuable in time of economic contraction. Those who borrowed money and made bad bets suffered.

Now central banking and fractional banking are entirely different animals from the boom bust cycles, though it was hoped that modern banking system would come to aid during contraction, it has only made life miserable for everyone else. The only real beneficiaries are bankers and borrowers (of which govt is a big one ).

This is a nice summary. Thanks.

Money is best taken care of when one involves oneself actively into managing it. Passive form of investments (like sp500 indexing or through a financial advisory whose hands are always tied with security and investment laws and regulation) rarely provide the return a person putting his money in the line of fire deserves.