DOW to 20,000 today?!!

[JettaKnight]

I don't know much about the stock market, so I thought I would ask the economic experts of ingo.

Does the federal reserve policy of keeping interest rates artificially low inflate the stock market?

If so, is the stock market artificially inflated?

If it is, why the celebration of hitting X?

Take a look at the Planet Money podcasts. The DJIA is already not indicative of the market as a whole, so it's somewhat moot.


As to the fed - I guess it depends on how you define artificially inflated... yeah, I'm an investor, not an analyst, so...

 

[BehindBlueI's]

I don't know much about the stock market, so I thought I would ask the economic experts of ingo.

Does the federal reserve policy of keeping interest rates artificially low inflate the stock market?

If so, is the stock market artificially inflated?

If it is, why the celebration of hitting X?

.
Take a look at how much cash is on the big company's balance sheets. Low interest rates certainly help consumer spending, which helps the economy, but the effect is blunted when folks are already sitting on cash. Interest rates are, at the most basic level, the supply/demand of money supply. With piles of cash on balance sheets, there's not much demand for borrowing.

As far as 'celebrating', it's more that we like big round numbers. I don't pay attention to the day to day fluctuations. I also don't chase big gains with risky startups or the like. I use a variety of mutual funds for a wide base and for individual stocks I select dividend payers. With interest rates for savings accounts at nearly 0%, 3% dividends look pretty good.

 

[Trigger Time]

Yeah I'm medium risk invested now. Getting older so slowed way down on the aggressive portfolio. I'm not a wealthy guy but what I do have is all I have. Not all my eggs are in one basket of electronic money though I can assure you that. There are many ways to invest your money.
Hell food has had a bigger return than any mutual fund or metal

 

[flightsimmer]

Yeah, I've been wondering if Trump might get around to auditing the Federal Reserve Bank.
I don't think it has ever been done before, might be very interesting to see.

Oh yeah! And the age old question: Is there any Gold left in Fort Knox, How much?

 

[jamil]

.
Take a look at how much cash is on the big company's balance sheets. Low interest rates certainly help consumer spending, which helps the economy, but the effect is blunted when folks are already sitting on cash. Interest rates are, at the most basic level, the supply/demand of money supply. With piles of cash on balance sheets, there's not much demand for borrowing.

As far as 'celebrating', it's more that we like big round numbers. I don't pay attention to the day to day fluctuations. I also don't chase big gains with risky startups or the like. I use a variety of mutual funds for a wide base and for individual stocks I select dividend payers. With interest rates for savings accounts at nearly 0%, 3% dividends look pretty good.

Another point, with more and more people making their own investments through places like e-trade and TD Ameritrade, prices are often driven without a lot of volume. I like to watch what the institutional investors are doing, but often we get these high-gain or high-loss days with low volume. That tells me the guys who do this stuff for a living are staying put, while the individual Joes react to whims of the markets.

That said, this latest push, since about December, volume has been very heavy upward. Which means big investors have decided that the stock market is where they want the big money.

 

[flightsimmer]

They wouldn't allow him too sadly and he wouldn't have the authority nor would congress. Private entity. That's why it needs to go away

That seems odd, don"t even private banks get audited from time to time?
Hasn't Congressman Ron Paul been trying for years to get the Fed Audited? I mean, they loan and print currency for the U.S. Government but their not a Federally controlled bank or something like that.
I know they have to report to Congress from time to time and they set interest rates but they don"t have to be accountable to the American people? That Seems Strange to me, but then I'm not very knowledgeable on the subject.

 

[JettaKnight]

Yeah I'm medium risk invested now. Getting older so slowed way down on the aggressive portfolio. I'm not a wealthy guy but what I do have is all I have. Not all my eggs are in one basket of electronic money though I can assure you that. There are many ways to invest your money.
Hell food has had a bigger return than any mutual fund or metal

What's this "hell food" you speak of, and is it available as an exchange traded fund?

I'm 41, and I'm only slightly less aggressive these days. I'm conservative with my pre-tax portfolios (e.g. 401K), but my Roth IRAs are heavy into small caps and 90%+ into equities right now. Grow, baby, grow - CAGR of over 8% for the last sixteen years (DJIA did only 2.64% over the same period).

 

[flightsimmer]

That seems odd, don"t even private banks get audited from time to time?
Hasn't Congressman Ron Paul been trying for years to get the Fed Audited? I mean, they loan and print currency for the U.S. Government but their not a Federally controlled bank or something like that.
I know they have to report to Congress from time to time and they set interest rates but they don"t have to be accountable to the American people? That Seems Strange to me, but then I'm not very knowledgeable on the subject.

Oh! And by the way, the American people are getting screwed both ways.
The dollar is and has been losing value like a falling rock with prices going up on the one hand and taxes keep going up because of it on the other hand and wages are mostly stagnant. It cannot last forever can it?

 

[JettaKnight]

Oh! And by the way, the American people are getting screwed both ways.
The dollar is and has been losing value like a falling rock with prices going up on the one hand and taxes keep going up because of it on the other hand and wages are mostly stagnant. It cannot last forever can it?

What do you mean the dollar is losing value? Compared to what? Inflation is low, the dollar is strong against almost all foreign currency and gold is near a five year low. Everything I see, the dollar is more valuable now than anytime in the last five years.

What newsletter are you reading?

 

[flightsimmer]

What do you mean the dollar is losing value? Compared to what? Inflation is low, the dollar is strong against almost all foreign currency and gold is near a five year low. Everything I see, the dollar is more valuable now than anytime in the last five years.

What newsletter are you reading?

I don't read news letters.

Like I said, I'm not very knowledgeable about finance but, my cost for products and services keeps going up so the value of the product or service hasn't changed so it must be that the value of the dollar is falling.
Explain to me how I'm wrong.

 

[brchixwing]

Very moot. Nobody that understands how indices are compiled would ever care about the DJIA. It's usually watched by retail investors / day traders / people on TV that have never been in the business.

The DJIA is weighted by individual stock prices, which are completely arbitrary. Kind of like how most currencies are fiat currencies and are very arbitrary / printed like newspaper, so are stock prices. Stock prices at offerings are pretty arbitrary, determined more by a given share count then priced for anyone that buys the offering. Subsequently companies can split/reverse split etc. to manipulate share prices.

The S&P is a far better proxy, because it is weighted by market capitalization, which is the value of the companies publicly traded equity as a whole. (total shares outstanding x last quoted price). Or if you want to stretch it out a little bit, the Russell 1000 is my personal favorite for bigger companies.

Take a look at the Planet Money podcasts. The DJIA is already not indicative of the market as a whole, so it's somewhat moot.


As to the fed - I guess it depends on how you define artificially inflated... yeah, I'm an investor, not an analyst, so...

 

[brchixwing]

Nailed it, the velocity of money has dropped like a rock, so all the money that has been printed has amounted to minimal inflation.

However from the corporate side, a lot of the cash raised from low interest borrowings has been plunged into corporate actaions, i.e. special dividends, acquisitions and repurchasing stock. When borrowing is cheap, everything is a good deal. The low rates has helped the market immensely. Bottom line, shrink the number of shares outstanding and your earnings "per share" goes up.

On the other side of the equation, stocks are really going up because inflation concerns are real. Every major institutional investor needs to plan for some period of inflation in the future where the money to satisfy their liabilities will be severely mismatched by their mix of bond/fixed income investments. This is the biggest driver for commercial real estate and stocks moving up, more and more money that used to be in long dated bonds are now flowing here where they should appreciate with inflation.

The biggest driver for all this comes down to money printing aka "loose monetary policy", "fiscal stimulus". Every economy around the world has been printing money hand over fist. Think back to post WWI, Germany reparations. If you owe money (government Bonds), and you print more money, you are ultimately repaying less money. We started the most recent rush, then the Japanese (Abe) followed suit and really throttled up, and then most recently the European Central Bank.

Rant over.

.
Take a look at how much cash is on the big company's balance sheets. Low interest rates certainly help consumer spending, which helps the economy, but the effect is blunted when folks are already sitting on cash. Interest rates are, at the most basic level, the supply/demand of money supply. With piles of cash on balance sheets, there's not much demand for borrowing.

As far as 'celebrating', it's more that we like big round numbers. I don't pay attention to the day to day fluctuations. I also don't chase big gains with risky startups or the like. I use a variety of mutual funds for a wide base and for individual stocks I select dividend payers. With interest rates for savings accounts at nearly 0%, 3% dividends look pretty good.

 

[brchixwing]

Inflation is usually a good proxy for the economy doing well, averaging 2-3% of inflation is healthy.

What is going to slaughter costs of business are obscene minimum wage laws going around America.

What are the key drivers for your company's margins? A good business model allows owners to pass through cost increases to their customers.

I don't read news letters.

Like I said, I'm not very knowledgeable about finance but, my cost for products and services keeps going up so the value of the product or service hasn't changed so it must be that the value of the dollar is falling.
Explain to me how I'm wrong.

 

[brchixwing]

Dollar is the relative strongest because the rest of the world is more Effed Up than we are, but in the long run, since every government has printed money like a rapper in a strip club, all paper money will devalue. Currencies haven't been backed by jack sh*t for a long long time.

But for the time being, we are the strongest, we have the best capital markets, and we own the best intellectual property. I.e. Even if we don't manufacture iPhones locally, the value of Apple is captured in the US of A.

In the developed world, Japan has crazy debt, zero growth, and terrible demographics. Tons of old, useless and sparse young. UK post Brexit is still sorting things out. EU youth unemployment is pretty horrendous.

What do you mean the dollar is losing value? Compared to what? Inflation is low, the dollar is strong against almost all foreign currency and gold is near a five year low. Everything I see, the dollar is more valuable now than anytime in the last five years.

What newsletter are you reading?

 

[brchixwing]

US Small Cap is the place to be. Tax rates are about to drop and US small caps generally have more to save. And all the Trump rhetoric, potential trade wars tells me I am liking US Small Cap for the next few years, with much less foreign exposure both business wise and currency wise.

If you divide the total value of enterprises in the S&P by the total dollar value of sales its about 2.2x. If you do the same for the Russell 2000 (small cap index) its about 1.7x. There is still plenty of meat on the bone even after the post election move.

What's this "hell food" you speak of, and is it available as an exchange traded fund?

I'm 41, and I'm only slightly less aggressive these days. I'm conservative with my pre-tax portfolios (e.g. 401K), but my Roth IRAs are heavy into small caps and 90%+ into equities right now. Grow, baby, grow - CAGR of over 8% for the last sixteen years (DJIA did only 2.64% over the same period).

 

[JettaKnight]

I don't read news letters.

Like I said, I'm not very knowledgeable about finance but, my cost for products and services keeps going up so the value of the product or service hasn't changed so it must be that the value of the dollar is falling.
Explain to me how I'm wrong.

Well, If you're going on personal anecdotal evidence, then I really can't say somethings wrong for you.

What I can do is explain it in global terms (as I did) and brchixwing explained it further.


Personally, I got one heck of a good mortgage rate, my income is going up, my costs are somewhat stagnant, so...

 

[brchixwing]

Be careful good sir. Stocks that used to be valued based on earnings and are now valued based on dividends can be dangerous unless you have a firm grasp on how the firm is capitalized and have high confidence that they can maintain their capacity to pay that dividend.

Dividend plays (lots of utility companies) that offer a 3% yield, are trading at 33x their dividend. I.e. if that dividend represents 80% of the company's earnings (payout ratio), then the company is a no growth company trading at 27x earnings. There is good reason to believe if you hold it for 10 years, you will see at least a 30% decline in the value of the underlying shares. 30% decline = 10 years of 3% dividends and you might as well have held cash.

.
Take a look at how much cash is on the big company's balance sheets. Low interest rates certainly help consumer spending, which helps the economy, but the effect is blunted when folks are already sitting on cash. Interest rates are, at the most basic level, the supply/demand of money supply. With piles of cash on balance sheets, there's not much demand for borrowing.

As far as 'celebrating', it's more that we like big round numbers. I don't pay attention to the day to day fluctuations. I also don't chase big gains with risky startups or the like. I use a variety of mutual funds for a wide base and for individual stocks I select dividend payers. With interest rates for savings accounts at nearly 0%, 3% dividends look pretty good.

 

[JettaKnight]

I used to be big into dividends, but now it seems like everyone else is, hence they're not as much of a value. However, I still hold some dividend ETFs.

I think Warren Buffet may be right - Berkshire Hathaway has never paid a dividend, they just plow that money into more growth.

 

[BehindBlueI's]

Be careful good sir. Stocks that used to be valued based on earnings and are now valued based on dividends can be dangerous unless you have a firm grasp on how the firm is capitalized and have high confidence that they can maintain their capacity to pay that dividend.

I'm no expert, but I'm also not a babe in the woods. I can read balance sheets, income statements, etc. These days I don't pick individual stocks much because I just don't have the time or energy to invest in doing my homework. I've succumbed to the laziness of mutual funds and index tracking. Not the best approach, I know, but more enjoyable for me at this stage of life.

The only utility I currently own is Otter Tail Corp. Current price is just under $40, and it's been paying 3% or more for more than a decade. I bought in 2010 @ 23.55/share so it's done well for me so far. I bought into Ford when GM was teetering on bankruptcy, and it's been a winner as well. With the Ranger and Bronco making a comeback soon, I hope that continues.

 

[flightsimmer]

Well, If you're going on personal anecdotal evidence, then I really can't say somethings wrong for you.

What I can do is explain it in global terms (as I did) and brchixwing explained it further.


Personally, I got one heck of a good mortgage rate, my income is going up, my costs are somewhat stagnant, so...

I haven't had a raise in three years, good employee, no problems.
My Soc. Sec. Has gone down.
My pension is stagnant and soon to run out from lack of funds (Teamsters).
My gas bill went up some
My electric went up some
My water went up some
House insurance went up a bunch
Groceries are up
Gasoline is creeping up
Car insurance is up some
Cable bill is creeping up. I wish I could get rid of it.
The phone bill is out of this world, went up $70 last month? Something about a one time charge?
Everything is creeping up in cost but it's value to me has not changed so what am I to think?
The value of the dollar is dropping?