The Long Term Investor

As a BUSINESS PERSON I totally agree with this little article. It has nothing to do with politics.

Woke capitalism is a failure, and top investors are complicit in its repulsive underside

https://nypost.com/2024/08/01/opinion/woke-capitalism-is-an-absurd-farce-and-top-investors-know-it/

 

As to the topic of the day.

Fed Dot-Plot Forecasting Fiascos: June 2008 and June 2021

https://www.cato.org/blog/fed-dot-plot-forecasting-fiascos-june-2008-june-2021-0

(BOLD is my opinion OR what I consider important content)

"The Federal Reserve chairman and Federal Open Market Committee (FOMC) always imagine that they can prevent recession by anticipating trouble in time to stop it. If that were true, soft landings would be the norm rather than a freak rarity.

At his July 31 press conference, Fed Chair Jerome Powell remarked, “We know that reducing policy restraint … too late or too little could unduly weaken economic activity and employment.… If the labor market were to weaken unexpectedly, we are prepared to respond. Policy is well positioned to deal with the risks and uncertainties that we face.”

Prepared and well positioned? That would be a unique surprise. The Fed has an almost perfect record of raising the federal funds rate on bank reserves only after inflation surges are well underway. And it has an even better record of cutting interest rates only after recessions are likewise underway, always too late and usually too much.

Was the Fed prepared and well positioned to deal with unexpectedly high inflation from the second quarter of 2021 to the second quarter of 2022? From October 2008 to May 2022 the federal funds averaged 0.5 percent and was almost always near zero (rising above 2 percent only from October 2018 to September 2019). The Fed did not respond at all as the year-to-year personal consumption expenditures (PCE) inflation rate rose to 4.1 percent in the second quarter of 2021, 4.7 percent in the third, and 5.9 percent in the fourth. By the second quarter of 2022, inflation reached 6.8 percent. Yet the fed funds rate in 2022 was only 1.2 percent in June 2022, 1.7 percent in July, and 2.3 percent in August.

Conversely, when it comes to “reducing policy restraint” to prevent recessions, consider what happened in 2008. By June 2008, the economy had been in recession for six months, but no Fed governor or regional bank president expected even a future recession in their June dot-plot “projections” for 2008–2010. Even when the oil shock recession was aggravated by financial crisis in the next two months, the FOMC remained unprepared to act.

This is what happened in 2008 and how the Fed reacted, as documented by the New York Times:

• August 5: “The F.O.M.C. holds interest rates steady. It frets that inflationary pressures are building. Three of the regional reserve banks want to raise interest rates.”
• September 7: “The Federal Housing Finance Agency places Fannie Mae and Freddie Mac in government conservatorship.
• September 15: Lehman Brothers files for Chapter 11 bankruptcy protection; Bank of America buys Merrill Lynch.”
• Sept. 16: “The F.O.M.C. continues to hold steady on rates. Most Fed officials say they still believe the economy is growing, still predict it will grow in the final months of 2008 and grow more quickly in 2009. And they still fret that inflation is rising.”

Previously, at a Federal Reserve policy meeting on November 20, 2007, a month before the Great Recession began, the FOMC introduced a new quarterly Summary of Economic Projections (SEP). These highly publicized quarterly projections, from Federal Reserve governors and reserve bank presidents, became famous as a scatter diagram called the “dot-plot.” Barely seven months after the November 2007 launch, however, this new FOMC central planning ritual failed spectacularly.

The SEP dot-plot projections from June 12, 2008, are shown in Table 1. By that time, the economy had already been in recession for half a year. Yet nobody at the FOMC in mid-2008 imagined recession was a serious threat. Indeed, “some participants pointed to the apparent resilience of the US economy … and suggested that the adverse effects of financial activity outside of the housing sectors could prove more modest than expected.”

SEP tables reveal participants’ projections of the percentage change in real GDP and PCE inflation between the fourth quarters of each year. They also post the unemployment rate expected in the last quarter.

The top panel in Table 1 instead highlightedthe “central tendency” of these estimates in June 2008. Instead of using a median as an average (which became common later), this “trimmed mean” eliminated the highest and lowest three. To emphasize that not one of the projections was remotely close to being right, I prefer to focus on the bottom panel—which shows the entire range of estimates for all 12 participants.

Meeting in the middle of 2008, with half the year behind them, not one of the June 2008 FOMC projections imagined the 18-month recession that started that January would happen at any time in 2008, 2009, or 2010. Projections of real gross domestic product (GDP) growth by year-end ranged from 0.9 percent to 1.8 percent. Yet actual real GDP growth in 2008 was sharply negative—down 2.5 percent by the fourth quarter. For 2009, the Fed’s June 2008 projections expected real growth of 1.9 to 3.0 percent. But economic growth in 2009 was roughly zero, 0.1 percent.

The June 2008 FOMC SEP projected PCE inflation of 3.4 to 4.6 percent between the fourth quarters of 2007 and 2008. But actual inflation was only 1.2 percent in 2008 and 2009.

The unemployment rate in the June 2008 dot-plot was projected to be 5.5 to 5.8 percent in the fourth quarter of 2008, and 5.2 to 6.1 percent in the fourth quarter of 2009. But the unemployment rate reached 6.9 percent by the last quarter of 2008 and 9.9 percent by late 2009. Unemployment remained above 9 percent until the end of 2011 and did not return to pre-recession levels until 2014.

Table 1: FOMC summary of economic projections, June 2008




The Fed has only once managed to keep the federal funds rate above 5 percent for a long time without recession, from November 1994 to November 1998 (even as PCE inflation fell from 2.1 percent in 1994 to 0.8 percent in 1998). Before that, the longest such “higher-for-longer period” experiment with such a high central bank interest rate lasted only 14 months—when the New York Fed kept the discount rate at 5–6 percent from August 1928 to October 1929. That ended with the Great Depression.

The FOMC’s third major experiment with a higher-for-longer strategy lasted from June 2006 to September 2007, when the federal funds rate was kept above 5 percent for over a year. That ended with the Great Recession.

The latest higher-for-longer Fed marathon, which began August 2023, is now almost a year old and still being tested.

The 2008 Fed projections were dangerously slow to react to the unfolding recession, remaining strangely more concerned about an assumed inflationary impact of a global oil price spike. They forgot that oil price spikes are reliable omen of recession (and of Fed mistakes). High oil prices and a high fed funds rate preceded every postwar US recession since 1957 except one (1960). Oil prices and the fed funds rate spiked before the recessions of 1957, 1970, 1974, 1980, 2001, and 2008.

Figure 1: Weekly oil prices and the federal funds rate 2007–2014




As Figure 1 shows, shortly after the June 2008 FOMC meeting, on the week ending July 4, the spot price of West Texas Intermediate (WTI) crude oil peaked at $142.52 a barrel, and the fed funds rate was 2.2 percent. Oil then fell to $97.19 by the week ending September 19, and the Fed cut the funds rate below 1.3 percent.

By Christmas 2008, WTI crude reached a weekly low of $32.98, and the Fed fund rate had been slashed to essentially zero (0.14 percent) where it remained until May 2022, aside from October 2018 to September 2019.

The hubris of central banking relies on what F. A. Hayek called “the pretense of knowledge.” Like the quaint central planners of socialist fantasies, the pretense is that a dozen experts can somehow steer the entire US economy with a tiny rudder—the overnight “policy rate” paid to banks for holding reserves at Fed district banks. Even if that worked as planned, it requires forecasts because using past data to set future policy is doomed by the long and uncertain lags between Fed actions and business and household reactions.

Just as the FOMC was astonishingly slow to react to the inflation surge in 2021and early 2022, they were equally blindsided in 2008 by another oil price shock recession—despite the Fed having repeatedly made the identical blunder in other recessions of keeping interest rates high because oil prices were high.

Keeping Fed policy unchanged until the Fed’s committee could agree about obvious risks of inflation or recession caused costly procrastination errors in 2008 and again in 2021–2022.

Top Fed officials today apparently remain as confident as they were in mid-2008 that they will get it right this time—by reacting to “the data” in plenty of time to avoid a recession. But economic data looks backwards, not forward. Because monetary policy works with a long lag, Fed policy must be based on forecasts. Unfortunately, FOMC forecasts have a dismal record."

MY COMMENT

BUT....these people are ELITE economists. ELITE....yes......but in reality ELITE MORONS. It is the height of insanity that we believe these people....or anyone....can predict and control the economy.

There is no way these Washington DC elites and insiders have any clue what is going on in the real world of the....little people. They live and work in a total bubble. They have no clue what is going on......with regular people.

 

The above two posts tie together. Woke capitalism and FED incompetence.

Unfortunately we allow these ELITES to tell us how business should be run.....how business should be controlled......how business should be regulated and taxed (to death).....how business should be forced to be the hand maiden of culture and social change.

We allow them to jerk the economy around with the IDIOTIC belief that somehow they know better and can actually have control of the HUGE....BROAD.....business and economic world.

They WRECK HAVOC......and are never responsible. No matter how badly they do and how much destruction they do.....never mind....it is all good as they give each other medals and awards.

 

As to the above....of course in the end.....it is "US" that are the IDIOTS. We are the ones that give these people POWER and allow them to do what they do.

 

HEY......we are close to seeing a single day "correction". INTC....down 30% (justified). AMZN down by 12% (unjustified). The big banks....plummeting. The small caps....rotating.....to a loss of more than 4% in two days.

It is a blood-bath today and yesterday.

The markets are on FIRE.....and I dont mean in a good way.

RUN FOR YOUR LIFE. FIRE, FIRE, FIRE. IT IS THE END OF THE WORLD.

At the same time look around your little world....see any difference today? I dont. Everything seems pretty normal. In fact I predict that at least about 50% of all people have no idea anything is going on today....at all.

HEY....APPL is UP today.....by over 2%.

 

HERE....I will throw some gasoline on the fire.

US factory orders fall more than expected in June

https://finance.yahoo.com/news/us-factory-orders-fall-more-141831489.html

 

At least there is some good business news today......although i will ask....what took so long?

Chevron to quit California for Texas after warning on rules

https://finance.yahoo.com/news/chevron-misses-estimates-adding-hess-102154971.html

 

I have one word for long term investors.....BREATHE. Dont get caught up in the negative mania. worst case we get a typical August correction. Not the end of the world and perfectly normal in the markets. It does NOT signal the end of the bull market.

An August stocks slump is ‘absolutely normal’ — but strategists urge caution on buying the dip

https://www.cnbc.com/2024/08/02/august-stocks-slump-strategists-urge-caution-on-buying-the-dip.html

(BOLD is my opinion OR what I consider important content)

"Key Points

• U.S. stocks kicked off August sharply lower as fresh data prompted fears of a worsening economic outlook.
• The weak data led investors to worry the Federal Reserve may be behind the curve in cutting interest rates to fend off a recession.
• “Corrections like this are absolutely normal, particularly when you have momentum which is overdone on the upside,” Cedric Chehab, global head of country risk at research firm BMI, told CNBC on Friday.

Strategists on Friday urged investors to take a cautious approach to a global stock market sell-off, warning it may be too early to buy the dip given that shares “look vulnerable to further falls.”

U.S. stocks kicked off August sharply lower as fresh data prompted fears of a worsening economic outlook.

Initial jobless claims rose the most since August 2023. The ISM manufacturing index, a barometer of factory activity in the U.S., came in at 46.8%, worse than expected and a signal of economic contraction.

The weak data led investors to worry the Federal Reserve may be behind the curve in cutting interest rates to fend off a recession.

European stocks fell around 1.6% on Friday morning, tracking a slide on Wall Street. In Asia, Japan’s benchmark indexes tumbled more than 5% on Friday, with the Nikkei index notching its worst day in over four years, Reuters reported.

Cedric Chehab, global head of country risk at research firm BMI, said a combination of factors were at play amid souring market sentiment. However, he insisted “corrections like this are absolutely normal.”

“The sell-off started about a week and a half ago but then it started to escalate down lower in the middle of this week. That was triggered by several things,” Chehab told CNBC’s “Street Signs Asia” on Friday.

“First of all, the hawkish Bank of Japan caused an implosion of the carry trade over a short-term basis. We also had bad manufacturing data out of the U.S. and some employment sub-indicators which scared markets,” he continued.

“And then overnight, we saw a lot of volatility in some of the major earnings. And all of that helps push equity markets, which had been quite expensive, even lower.”

Chehab said one factor that some investors appeared to be forgetting was that there is typically a seasonal rise in equity market volatility between the period of July and October.

“So, this isn’t to be completely unexpected given the historical patterns around calendar effects on equity markets, especially after the fact that there was such a large rally in U.S. stocks and global stocks.”

Asked whether the sell-off means investors should be thinking about hitting the panic button, Chehab replied, “No, I don’t think so. And that’s because from a technical perspective there is a lot of support, in terms of moving averages and key technical levels.”

He added, “corrections like this are absolutely normal, particularly when you have momentum which is overdone on the upside.”

Too early to buy the dip?

Policymakers at the U.S. central bank on Wednesday held interest rates steady, although Fed Chair Jerome Powell gave investors some hope by signaling a September rate cut is on the table.

Shane Oliver, head of investment strategy and chief economist at investment management firm AMP, said a correction appears to be getting underway.

“Shares went sky-high into July on the back of better news on inflation, increasing optimism about lower interest rates ahead and optimism about IT and AI related earnings,” Oliver said in a research note published Friday.

He added that while AMP’s view is that lower interest rates ahead will likely boost shares over the next six to 12 months, assuming a recession is avoided, global shares “look vulnerable to further falls suggesting that it’s too early to buy the dip just yet.”

Market attention now turns to the closely watched nonfarm payrolls report later on Friday, with investors looking for clues on the pace and scale of Fed cuts over the coming months.

“The past 24 hours have seen an increasingly precarious backdrop for risk markets, with a risk-off mood on the back of another batch of weak U.S. data yesterday followed by mostly downbeat tech earnings overnight,” analysts at Deutsche Bank said in a research note published Friday.

“With all the scrutiny on the data yesterday, the focus will now shift onto the U.S. jobs report today.”

Mizuho rates strategist Evelyne Gomez-Liechti said Friday that consensus for the nonfarm payrolls report is for a decrease in payrolls to 175,000 in July, down from 206,000 in June.

The bank’s U.S. economists, however, see room for an upside surprise of 210,000 on the month, Gomez-Liechti said."

MY COMMENT

Today.....a great lesson in Psychology....but at the same time....BORING. I dont do SILLY so I will simply do NOTHING.

As a long term investor I do not choose to participate in short term panic or mania.

The market can sell-off but I will not. I remain fully invested for the long term as usual.

 

On final thought before I quit watching the markets today.....there has been some posting about INTC today. Here is what is going on. NOTHING new here....this company has been failing at a glacial and unrelenting pace for the past 20 years. Basically disastrous management.

Intel shares plunge 28%, dragging down global chip stocks

https://www.cnbc.com/2024/08/02/int...-global-chip-stocks-from-tsmc-to-samsung.html

 

OK....EVERYONE....take heart. COURAGE.

Yes the past week or three have been very volatile and some good drops depending on what you own. This is what separates the MEN from the BOYS.....the WOMEN from the GIRLS.

This is a wake up call to see if you are really a long term investor.....or.....just pretending to be a long term investor.

Look at this as an opportunity to check your RISK TOLERANCE and your portfolio make up. If you cant sleep at night and are starting to live on the edge of panic.....your portfolio is probably too extreme. It is out of wack with your ACTUAL risk tolerance.

Take this as an opportunity....once things settle down to evaluate what you own and make any needed changes to bring your portfolio more in line with your risk tolerance. Perhaps it is not a good idea to own ALL tech stocks. Perhaps you should have more in a simple average like the SP500 and less in individual stocks. Perhaps you are not cut out for individual stocks at all and should simply just do the SP500.

There is....NOTHING WRONG WITH THAT....it is all about "YOU". If the markets are driving you crazy it is hard to stick in there for the long term.

I am sure there are some reading this that have NEVER invested through a NASTY BEAR MARKET. We had one in 2022.....and if you missed it......you have been spoiled by the BULL MARKET. Part of investing for the long term.....at least to me.....is holding through all the corrections and bear markets.

The 2022 bear market lasted over a year...it was soul-sucking....like all bear markets. But a new day always dawns.....the sun comes out again. And for me I want to be invested when it happens so I will capture the big gains that come with it.

 

You hanging in there....Lori? Others?

If it helps.....you are not alone. We are all going through the same thing these past weeks.

If you are struggling with this drop....post on here. It is anonymous. Ask questions....put out your thoughts. There are many, many, long time investors on here that have SEEN IT ALL. That is what this thread and board are for. We all help each other get through the nervous times in the markets.

This drop is a little dot on a long term chart of the SP500. Over a year, five years, ten years.....it will not even be visible. You can either hold through it.....or....sell and lock in the gains. At that point you will be left guessing when or if it is safe to get back in.

This is why you only invest.....long term......risk money....in the stock markets. This is why you dont ivnest your short term savings that might be needed......in the markets.

As I said above....fine tune what you need to....adjust your thinking as needed.....and move forward.

 

AND....good news....I now have TWO stocks in the GREEN. AAPL and COST. I am also expecting that as we head toward the close I......"might"....even end up with a few more.

 

To put things into perspective:

"The Nasdaq is the first of the three major benchmarks to enter correction territory — down more than 10% The S&P 500 and Dow were 6% and 4% below their all-time highs, respectively".

https://www.cnbc.com/2024/08/01/stock-market-today-live-updates.html

SO.....we go into this HUGE episode of panic and fear......when the SP500 is only down 4% from an.....ALL TIME HIGH. The DOW only 6%.....from an ALL TIME HIGH.

You have got to be kidding.

Even the NASDAQ is not as bad as the above sounds. YES....at this moment it is down by 10.16%. BUT that is from the ALL TIME HIGH....which was less than a month ago on July 10 when it hit 18,647.

Again.....you have got to be kidding.

 

As to REALITY

Year to date the NASDAQ......+13.45%....even with the recent drops. This is WAY above the long term average annual gain.

Year to date the Sp500.....+12.30%....even with the recent losses. This plus dividends is WAY above the historical ANNUAL average.

Year to date the DOW.....+4.98%.....even with all the recent losses. Average annual historical annual gain is about +8.5%.

You have got to be kidding.

 

I wonder where all the FED people are hiding today. Amazingly I dont see a single one of them out there telling us how great they are. I guess they are in hiding......since they are not needed to tank the markets today.

 

Looks like the markets came back a little bit heading into the close. I was in the RED today....but not much more than any other negative day. In fact....I ended with TWO.....yes TWO....stocks GREEN. AAPL and COST.

I also managed to BEAT the SP500 today....by 0.03%.

On a day like this I will say........good enough.

 

HERE is how the week went for the markets:

DOW year to date +5.36%
DOW five days (-2.28%)

SP500 year to date +12.73%
SP500 five days (-2.37%)

NASDAQ 100 year to date +11.47%
NASDAQ 100 five days (-3.67%)

NASDAQ year to date +13.61%
NASDAQ five days (-3.83%)

RUSSELL year to date +4.66%
RUSSELL five days (-7.02%)

Looks like the "rotation" in the RUSSELL took a big hit this week.....DOWN by -7.02%. BUMMER for the rotation story line in the media a week ago. Of course....the media has now moved on to the RECESSION story-line over the past TWO DAYS.

As to little old me......I ended the week with my entire portfolio at +33.60% year to date as of the close today. Last week I was at year to date +37.42% as of the Friday close. I lost most of the cushion that I got on Wednesday this week. BUT....I cant complain about a year to date gain of +33.60%....even though I might lose some more of it going forward.

 

This is the real story today.....and probably responsible for much of the market drop.

Intel has worst day on Wall Street in 50 years, falls to lowest price in over a decade

https://www.cnbc.com/2024/08/02/int...-global-chip-stocks-from-tsmc-to-samsung.html


How far the once mighty INTC has fallen. A perfect example of disastrously incompetent MANAGEMENT.

 

We also have this little "gem" to add to the carnage today....your government in action.

Nvidia is facing an antitrust probe from US regulators amid competitor complaints, report says

https://finance.yahoo.com/news/nvidia-facing-antitrust-probe-us-193128732.html

God forbid that an AMERICAN company actually leads the world in a business segment. NO....we cant have that going on.