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- Slick
- Rande
- Rande
- KLR
- Mark_J
- Rande
- KLR
- Mark_J
- Rande
- Rande
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» Slick - Risking Recession?
I find it hard to believe, Greenspan IS ( as Brinker says) quite willing to risk recession by putting in a "panic stop" rather than the steady pressure brake, as in the past. You seems to imply that the direction of the Fed is somewhat tied to politics, rather than hard data. We all know "shades" doesn't like the valuations of the stock market, and has " jawboned" it at times in order to effect his view. I'd hate to think after 10 years of a Greenspan led Fed, he's finally enamored by his power and is not thinking rationally. But, I'm a long player in this market,and hate to be faced with " conflicting" data on the direction .I'm sure we'll all survive, but why tinker so much with the compatibility of the " golden goose". Obviously, it has me worried. Thanks for your comments.Slick
-- posted by Slick
» Rande - KLR,
KLR,Sale of the fund shares would be a taxable event, no matter what you did with the proceeds. If you have a sizable unrealized taxable gain in the fund, I wouldn't jump to swith to the ETF version. Why do it? The differences aren't that great, and the expense ratio will probably only be cheaper by a matter of a few basis points (let's keep it in perspective, okay?). This is more of a competitive market share share decision on the part of Vanguard than anything else. Philosophically, they probably hate the notion of ETFs, since it goes against their mantra of "stay the course." At the same time, they aren't public servants as some would think them to be -- they're in the business of gathering and retaining assets. Sorry if that bothers some folks, but let's be real. On the other side, I applaud them for getting with the times an offering more options to investors.
Bottom Line -- This is not THAT big of a deal. For new money, you've got a choice (and must weight the commissions against the no-load along with all the rest of the pros and cons in making a decision), but not enough to switch an existing position if significant tax liabilities would be involved.
-- posted by Rande
» Rande - Slick,
Slick,I completely and utterly disagree with Brinker's assessment of Greenspan's motives. NO WAY, Dr. G. would want or welcome a recession. All of the evidence, given his gradualist approach and willingness to give the New Economy the benefit of the doubt, points to a Fed that would prefer to err on the side of mild inflation vs. recession. After all, Greenspan is not a nutcase and, since he has no vested interest in whether the market goes up or down in the short-term, he realizes a recession would cause severe and widespread harm. A recession would be entirely inadvertent and unintentional, though doesn't mean it couldn't happen as it has before when the Fed has tried to engineer a "soft landing." Those who say we are in a "new era" have been lambasted by the tongue-cluckers for some time no, but only those in the most severe of denial would still deny that structural economi changes have taken place. Even Greenspan has admitted as much. This raises the stakes even higher, since we're walking on new ground to a great degree (no historical precedent, no infallible "model" to rely on). Conventional wisdom would still suggest the odds for recession in the near term are minimal, even with a 50bp hike next week.
My main reason for thinking 50bp is likely on Tuesday? The markets have already given Greenspan tacit approval (and, as we've talked about, may even be upset if he doesn't do it). Who is Dr. G. to refuse such largess? Now, if he wants to be a really nice guy, he'll give us the 50bp AND announce a shift to neutral. Chances are, though, he'll leave the markets hanging with the uncertainty of future hikes, whether he raises 25 or 50bp on Tuesday.
<img src=http://www.internetcount.com/1867857677.cgif width=5 height=5>
-- posted by Rande
» KLR - VIPERS AGAIN
Rande, Thanks for you response; however, it seems to me that selling VIGRX and buying VIGRX-based VIPERs wouldn't be a taxable event. Much the same as selling the Vanguard 500 and buying spyders. Or am I wrong there too? Suppose I had a loss position in VIGRX fund shares, could I sell those shares for a tax loss while simultaneously buying VIGRX-based VIPERS? Doesn't seem right. Also, have you seen anything re: shortability (is that a word?) i.e. can you short all VIPERS?-- posted by KLR
» Mark_J - Seems to me we're likely to get a .
Seems to me we're likely to get a .50 hike this week and possibly, another hike of .25 in late June.I agree with Rande that the Fed does not WANT to create a recession. I think their goal is to create a soft-landing.
I disagree with Rande that the Fed will accept mild inflation, though. Alan Greenspan has demonstrated that he believes public enemy number 1 is inflation.
The Fed hopes that they can combat inflation without serious economic reprecussions. Thus, create a soft landing. The gradulist approach Greenspan has initiated does seem to indicate that this is the goal. A recession would be unfortunate. I can't picture Alan Greenspan hoping that we have one.
But I agree with a weekend talk show host, that Greenspan will fight inflation first, and take the 50-50 chance of a soft landing.
-- posted by Mark_J
» Rande - KLR,
KLR,I think you're now referring to the wash sale rule. First things first -- sale of the fund shares is most definitely a taxable event, no matter what you do with the proceeds. If you have a gain, you will report it on Schedule D of your tax return and pay the tax, whether you reinvest the proceeds or not. Now, if you have a loss the question arises as to whether or not a purchase of the equivalent ETF would amount to a "substantially identical position." If so, then doing so within 30 days of the sale would violate the wash sale rule and you would not be able to recognize the loss for tax purposes, but would instead adjust the basis of your new position. Although the ETF is a separate entity from the index fund shares, my opinion would be that if the portfolios are substantially identical then you would have a wash sale issue and would not be able to recognize the loss unless you waited 31 days.
-- posted by Rande
» Rande - Mark,
Mark,Well, it comes down to a matter of opinion I suppose. There are plenty of economists and commentators as well as Fed officials themselves who have said that mild inflation is preferable to severe recession in the eyes of the Fed (converseley, mild recession would be preferable to severe inflation -- it's a matter of degree). Stable growth with low inflation is the goal. It is not reasonable to assume the Fed would pursue a zero-inflation goal without regard to the fallout and consequences of its monetary policy. The gradualist approach Greenspan has followed is evidence aplenty of his willingness to err on the side of growth, especially in an economic environment that is unprecedented where the old models appear increasingly useless. Anyway, it seems reasonable to me that the Fed could live with a 3-3.5% inflation rate much easier than it could with high-single-digit unemployment, loan defaults, bankruptcy, etc. Perhaps we'll all get lucky and the Fed will be able to do the soft landing thing where we can avoid both recession and inflation, as we have for so long. Clearly, investors who remain in the market hope for the best, as would any sane working person with no direct investments at all. That leaves the market timers who are currently out of the market. What are they wishing for? Potential for some twisted thinkging there, but hopefully only on an isolated basis.
All a matter of debate and opinion, even for the folks at the Federal Reserve:
From 2/24/00 IBD, and interview with Howard Wall, senior economist at the Federal Reserve Bank of St. Louis:
IBD: Any thoughts about the outlook for inflation over the next couple of years?
Wall: I'll only parrot what Chairman Alan Greenspan is saying: that he sees a risk of inflation and that the Fed will keep an eye on it and take care of it. Whatever the Fed does to try to take care of inflation, the goal is not to cause a recession or anything like that. Instead, the worry is that inflation is really bad for growth. And we want to try to keep the growth going for as long as possible.
This is from a 5/10 USA interview with Dallas Federal Reserve Bank President Robert McTeer:
Q: Is the run-up in financial markets frightening to central bankers?
A: When the Nasdaq went up 87% in1999, I wouldn't call it scary, it was amazing. I don't want to leave the impression that I know what (the stock markets' level) ought to be because I don't, though it did look like an awfully unsustainable thing to have happen. Clearly, a lot of something, I guess it was air, has gone out of it. I do believe we're in a new paradigm. We're in a new economy, and we shouldn't expect all the old stock valuation rules apply to the new economy. But that doesn't mean the sky's the limit, either. The markets are a lot closer to earth than they were.
Q: Do rising wages necessarily mean inflation?
A: Wages are key in the economy. When wages start leading to costs rising more rapidly, if you have tight labor markets and very little excess capacity in the economy, it is very likely to be inflationary. On the other hand, if productivity is keeping up, then wages can rise pretty fast without it leading to higher unit labor costs.
Q: Did the fact that productivity rose a less-than-expected 2.4% last quarter worry you in that respect then?
A: Well, everyone focused on the 2.4% number. Nobody said anything about adding five-tenths to the fourth quarter. You know the fourth quarter they were saying (productivity rose at) a 6.4% (annualized rate). Then it was revised as 6.9%. If you look at a graph of quarterly productivity numbers, it is not smooth. There are usually a couple of big ones followed by a little one.
Remember last year, the second-quarter (productivity) number was kind of weak, and people were saying maybe (this productivity boom) is over with. Then we had two fantastic quarters in the second half.
It wasn't but a few months ago that I thought I was being daring when I said productivity could go as fast as 3%, and when I was saying it, thinking I was being daring, the economy was already doing it. In many ways, productivity growth is even better than those numbers indicate. Productivity is great, the numbers are great, and the reality is probably even better than the numbers.
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-- posted by Rande
» Rande - Ken Gregory’s current “No-Load Fund Analyst” has a great lead pi
Ken Gregory’s current “No-Load Fund Analyst” has a great lead piece – “Asset Class Review.” Excellent summary of the Littman/Gregory group’s views on the macro economic picture and the relative attractiveness of the major asset classes. Here’s some excerpts, followed by a link to the piece:
There is much to be happy about with the big picture. The global economy is strong. Global competition and changes in capital markets are forcing companies to focus on access to capital, so corporate managements are increasingly attentive to their shareholders and profits. Restructuring is common and financial disclosure has improved. (Ironically, in the U.S., where we already have the best disclosure, getting to the real story is becoming more difficult as companies increasingly “manage” their earnings to market expectations.) At the same time, technology does seem to be increasing productivity. That, along with the impact of the Internet on distribution and cost structures in some industries, a generally strong central bank emphasis on inflation, and intense competition, suggests an excellent intermediate-term inflation outlook. But we shouldn’t be too confident
We continue to expect S&P 500 returns to be lower over the next five to ten years given the low probability of further P/E multiple expansion—the driving force behind the great equity market returns of the past 18 years. However, value stocks, REITs and perhaps foreign stocks offer decent return potential relative to inflation. Risks are real, and it would be naïve to think we’ll never be blindsided again by something that will trigger a bear market. But for patient, long-term investors, good, safe returns can be had by taking advantage of the lack of interest in many sectors of the market. Owning assets that have been out of favor, largely in the value world but also in some sectors of the small-cap market, that offer decent growth potential, are very likely to deliver acceptable returns given time. The tech sector may do the same but there is a lot of hope built into the prices of many tech stocks. Investors seeking good returns here must take much more significant short and long-term risk.
Executive Summary:
Globally, the big picture is favorable.
Domestically, many growth and technology stocks appear dangerously overvalued.
Value stocks are more attractive on a relative basis right now.
REITs may continue to lack a catalyst in the near-term, but we expect double-digit longer-term returns based on their high dividend yields and cash flow growth prospects.
Foreign stocks are no longer as good a bargain, but remain attractive.
<img src=http://www.internetcount.com/1867857677.cgif width=5 height=5>
-- posted by Rande
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