Where To?
@hussmanjp ?
Next Decade? https://t.co/1Z6yJV7hvk— Mike “Mish” Shedlock (@MishGEA) December 19, 2019
My Guess of Hussman’s Guess
Hussman undoubtedly negative, just looking for a number.
I suspect it will be -4 to -7% or so with the ultimate drawdown -70%
But that is MY guess of HIS Guess
— Mike “Mish” Shedlock (@MishGEA) December 19, 2019
Hussman Replies
Figure SPX/FV from 3x to 1x (no undervalue). Structural real growth 2%, inflation 2%, so ~4% nominal (faster inflation would drive valuations lower, so no use hoping for that). Gets you to (1.04)*(1.0/3.0)^(1/10)-1+ 2% divs (roughly) = -4.8% annually. Interim drawdown ~65%. https://t.co/KEv1vFBf5b pic.twitter.com/RhJIzMEkUH
— John P. Hussman, Ph.D. (@hussmanjp) December 19, 2019
-4.8% annually for 10 years.
Max drawdown -65%.
If I interpret Hussman accurately, I come up with this.
Future Value at -4.8% for 10 Years
MoneyChimp has a nice Compound Interest Rate Calculator.
It allows negative interest rates. Most don’t despite the huge amount of negative-yielding bonds.
Hussman on the Fed Model
Not for total returns. It’s pretty dismal in terms of correlation with subsequent returns, though it does warn at rare times high P/Es overlap high yields. Slightly better for risk-premium (i.e. stock returns – bond returns) but there are easily more reliable measures there too. pic.twitter.com/KU4rMGGioV
— John P. Hussman, Ph.D. (@hussmanjp) December 19, 2019
Looking Back
https://twitter.com/ChrisRecker_AZA/status/1207781115278307329
My Guess
I do not have a guess as to where we will be 10 years from now but I do expect something on the order of a 65% drawdown between now and then, with some sort of rebound then in play, perhaps no higher than we are now.
US Large Caps
Let’s assume the GMO 7-Year Forecast is correct and someone lost 4.4% every year for seven straight years.
That is amazingly tame compared to what some of us think.
Yet, it would crucify pension plans assuming 7% annual gains.
Mike “Mish” Shedlock
Please help me understand exactly why the market will ever go down with unlimited money printing and soon to come MMT?
My link explaining was removed for some reason.
Money printing just means more bits of paper chasing the same amount of goods & services.
For arguments sake let’s say the stock market yield at a price of 100 is 2%. If the stock market is 10 times higher with no increase in earnings the yield is now only 0.2%. Assuming not all the printed money was spent on equities, other dollar yields will also have fallen. You now have to spend 10 times as much to get the same return before the money printing. So sell dollars and buy money & assets that don’t lose their purchasing power.
Are you basically saying that money printing creates inflation, but wages don’t go up, so at some point few will be able to afford to buy things?
Yes, as in Germany in the 1920’s
link to en.wikipedia.org
Yes as in Germany in the 1920s. I can’t post any links but google German Hyperinflation, there’s a wiki article that covers it.
By November 1923, the US dollar was worth 4,210,500,000,000 German marks.
What’s the common link with all countries that experience hyperinflation? They can’t sell their bonds. For at least the next few years the US does not have this problem. Although, the rates will be higher.
The Fed has problems gettin the money into the “real” economy. They can print and send it to banks where it gets consumed in the the stock market or buy backs.
And to answer you question I think the market will go on sale but never actually go down numerical terms.
Of course like@scooot said actual buying power will be greatly diminished.
Mish you are flat wrong.
The future is the fed buying everything.
The market might correct at some point but if needed the fed will quickly step in and buy until things are “fixed”.
Talk about return on your money. The fed buying 10 or 20 or 50 trillion worth of stock to prop up a 100 trillion dollar market.
Down destroys the system. Destroys the Fed. Up keeps the oil flowing. Keeps the fed.
Do you really think they are going down without a fight?
Governments have never been successful supporting markets. They’ve often tried to support their currency in the past, it never works. I remember the UK trying on Black Wednesday. They put their base rate up several times in one day to about 15% if my memory serves me correctly. Eventually they gave up & sterling collapsed. If they tried to support the stock or bond market with printed money the $ would be toast. At the moment the markets don’t perceive they are trying to support the markets, when they do everything changes.
The difference now Vs the then is very simple.
The percentage of regular people buying the market is a fraction of the size it was in that past. The majority of the market is owned by a very small percentage of the population. This makes manipulation much easier when that portion can be bought out.
I do expect a engineered crash but that would be more of a sale for those in the know.
I know one thing for a fact though. The rich have gotten that way though the market.
Inflation is the only way out of this. Don’t think they are just going to submit.
People have always said it’s different this time, -:)
It’s just has to be this way.
This whole blog is about systemic problems.
Underfunded liabilities, deficits, runaway debit, asset inflation
What do all these have in common?
The fix is inflation. That’s the only fix. None of these problems can be fixed without extreme pain. Votes don’t like that.
And you are correct. It isn’t different this time. If you time frame is the last hundred years you can make that argument. If you time frame is 5000 years it is not different this time. Inflation is coming. One way or the other. If they start cutting checks to the people with printed money or dumping it out of an airplane over cities. It doesn’t matter.
And I am a fan of gold. But gold is deflationary. Everybody will want to be paid in gold but no one will want to pay in gold in an inflationary environment. That means gold get socked away under a bed somewhere.
And government could kill gold in a heartbeat if needed. Make it a felony to own more than an ounce of gold for jewelry. 10 year sentence. Gold would be dead. Just like crypto if it ever threatens the system. It’s not different this time.
Inflation is not a fix. Google German Hyperinflation, there’s a good Wiki article on It. I can’t post links for some reason.
I understand the Treaty of Versailles.
It was a solution to a debt problem. The people suffered but the problem was solved though inflation. The problem being reparations with the goal of holding the German economy down. The problem was they(English) wanted to be paid back in Marks instead of pounds. So the Germans paid them back with the printing press. Bam debt solved.
QE wasn’t a solution. It was what had to happen to keep the market from failing.
Inflation is what has to happen.
Why does everyone seem to think they(CB) are finally going to do the right thing? They will do the only thing. Print money.
“since reparations were required to be repaid in hard currency, not the rapidly depreciating paper mark, one strategy that Germany used was the mass printing of bank notes to buy foreign currency, which was then used to pay reparations, greatly exacerbating the inflation of the paper mark.[11][12]
Late in 1922, Germany failed to pay France an installment of reparations on time, and France responded in January 1923 by sending troops to occupy the Ruhr, Germany’s main industrial region. The German government ordered a policy of passive resistance in the Ruhr. Workers were told to do nothing which helped the invaders in any way. What this meant in practice was a general strike. But all the workers on strike had to be given financial support. The government paid its way by printing more and more banknotes. Germany was soon awash with paper money. The result was a hyperinflation.[13] A loaf of bread in Berlin that cost around 160 Marks at the end of 1922, cost 200,000,000,000 Marks less than a year later.[13]”
Quick technical check using monthly chart:
(first two tries not accepted, trying again).
Long-term Volume Profile of (higher volume) ES indicates 60% correction to around 1320.
(two trailing lines are long-term Vwaps starting at major lows).
S&P moved the USA down one notch from AAA to AA+ some time ago. I wonder when some of the others might follow. Surly they must be thinking about it, they’re not going to look very good when the bubbles burst.
But the real question is how many tens of trillions will the Fed print to keep this pig afloat?? Seriously…what will stop the Fed at this point?? I never thought they would be able to get much further but here we are again with “not-QE” and backdoor bailouts of a large bank and/or hedge fund(s). What a joke this has all become…
It’s all centrally planned and managed now.
Stock market – up (only). ✔
Inflation – 2% (until further notice). ✔
Debt – out the wazoo. ✔
Cynicism – up (and rising) ✔
Santa calls “ho ho ho” on blogger cynicism, his 401k is as fat as an elf!
Per Harry Dent-like thinking (and it kinda makes sense): The next couple of years is gonna be bad, however, my sister was born in 1973, the lowest number of births in a generation (3.1 million). She’s 46 this year (the year Dent says is the average person’s maximum spending in our lives) and 50 in 2023 (when the high earners max out their spending). If my sister is the lowest birth point for people turning 50, and births only go up from her low point in 1973/2023, I’m thinking from 2023 on Americans will spend and spend and spend (and borrow) more every year from 2023 on. The math worked for the baby boomers — why not for busters flowing into millenials?