jb85

How would the 2014-2045 period be different than 1945-1985 period? I'm assuming GDP will grow at about the same rate? I still don't understand where the late 1970s inflation came from? Oil price rises combined with a bunch of wages linked to inflation? Seems like at least the inflation linked wage jobs have been eliminated/reduced? Thats kinda my understanding...interest rates rose in response to inflation (volker). Chicken or egg, which came first? i'm not sure. If inflation was a result of high government spending, then why didn't inflation happen when money supply was highest? inflation in the late 70s and 80s happened when money supply was actually fairly low. See below graph: http://i.imgur.com/LYtGEpV.png

yeah, that makes sense...After thinking about it, i was being lazy with my logic and assuming that b/c we had inflation at the end of the last instance of fed unwinding (1949-1984), that we would have inflation again this time. Rates rose pretty steadily from 1949-late 1970s, in line with your idea that as private money leaves the system, rates rise. that makes sense to me. So outlining a scenario now...fed assets as % of GDP go from 20% (now) to say 5% in 2045. Rates gradually rise from <3% now, to say 6-7% in 2045 as more private money is removed from the system. Can we infer what inflation would be in 2045? Would there be another "breaking the back of inflation" episode in 2045, or are they unrelated?

I'm still trying to wrap my head around this would work. Fed Assets as a % of GDP were just as high after WW2 as they are now. Back then, Fed wound down assets gradually over 40 years, bottoming out (in terms of assets) in the early 1980s. Possible they do that again? creating mild inflation (<10%/yr) along the way?

Right. Definitely agree with that. Interest rates at 5% on the 10 year assume a market P/E of around 100/5 = 20 (maybe a little lower p/e for the higher risk in stocks), 3% rates = P/E of around 100/3=33, etc etc. But as you pointed out, as you get interest rates very low, the relationship breaks down. interest rates of 0.5% imply a P/E of 100/.5=200 which is obviously not going to happen. I''m guessing we are about there now with the ten year yielding 1.9%. that said, with rates at 1.9%, i don't think a shiller pe around 30 is all that crazy. If it remained at 1.9% for the next 20 years, then i'm perfectly fine riding the market and its 6%/yr or so growth from earnings increasing. I can definitely see a plausible scenario where the Shiller P/E stays above 25 the whole time....that is if interest rates remain in the 1-3% range during that period. Shiller P/E of 50+ is less likely but who knows

tend to agree that no one can be all the certain on the direction of rates. Though i do think that going through a major deleverging will tend to suppress rates for a very long time as Dalio has discussed. from 1934 to the mid 1950s, during the last major deleverging in the United states, total credit to gdp went form 235% to 125%. the yield on the 10 year treasury during the ENTIRE period was below 3%. right now we are at 330% (down from 360% in 2009). I can't guarantee that we will continue to delver and reduce that 330% number, but if you could guarantee me that we continue to delever, then i think i could almost certainly guarantee low interest rates during that period of deleverging. So the main question is, do we continue to drop that 330% number? and if so, where does it bottom out and how long does that take? give me that answer and i can make a pretty good estimate of interest rates, and therefore stock returns as well over the next few decades or so edit: a bit more actual #'s during the 1934-1955 period which may have some relevance for today --> http://i.imgur.com/vTJ7zU3.png

with all these earnings multiple analysis, don't you have to account for interest rates? 16.5 at 5% interest rates is very different from 16.5 when rates are below 2% also, regarding raising rates, i don't understand why they would rise signficantly. Most the the yield curve is very low, and the fed hasn't been buying for a bit. Is it possible that the market rate for money is very low because we are in a long term secular deleverging? businesses not borrowing, but instead paying back debt i took a quick look at the spread between the 10 t-bill rate and the 10 year E/Y (ie 1/shiller PE). This number is graphed below since 1880s. looks like its not really all that overvalued given interest rates. Sorry the x-axis is ascending in the wrong direction (2015 on left side) http://imgur.com/nRD7lIv

i have a crude excel sheet with ackman, einhorn, loeb, denali, etc pefformance and many others going back a number of years...usually since inception of the pertinent fund. PM me if you're interested

I track some various user metrics monthly. Here's some of that info http://i.imgur.com/Brw0e9x.png

that is weird... The table vs chart show two completely different things I did some digging, and i think ultimately you're right. I managed to find m0, m1, m2, m3 ,m4 data for The UK during the time frame from a different source...assuming that data is accurate, i did some calcuatlions and seems that across the board, m0 and m4 all declined as a % of GDP from 1947-1969 (though they went UP on an absolute basis)...so now i'm with you...where did the inflation come from? here's my calculations below (highlighted are cells i calculated, rest was given data) http://i.imgur.com/v316izS.png ___________ and the original excel file i got from here: https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CB4QFjAA&url=http%3A%2F%2Fwww.bankofengland.co.uk%2Fpublications%2FDocuments%2Fquarterlybulletin%2Fthreecenturiesofdata.xls&ei=HjbmVLjKOpGmyATQ-oEw&usg=AFQjCNHdilZGDt4Az7OCUC1dxo6LcWquzA&sig2=0pEmMrcEw7urGHyklHYm9w&bvm=bv.85970519,d.aWw

No, it went UP as a % of GDP. at link below, page 14, row titled, "M0 Growth % GDP, Avg. Ann." http://www.bwater.com/Uploads/FileManager/research/deleveraging/an-in-depth-look-at-deleveragings--ray-dalio-bridgewater.pdf ...and yes it's certainly possible that even with a decline in m0, that we get inflation. Im not predicting it will happen, but if the time frame is short enough, i don't think m0 is a great indicator of future inflation. I could see a scenario where M0 goes from 12% of GDP to 8% of GDP, but over the same time frame M2 goes from 60% of GDP to 75% of GDP. Again, not saying/predicting anything...but outlining a possible way that we get inflation even with an m0 decline. raw of amt of money supply definitely matters, but so does the lending rate at each level of m0, m1, m2 etc. The lending rate is harder for the fed to control and largely decided by the banks themselves. Since, 2007, we've seen a huge increase in m0, but not a proportional increase in m2...because the m0 got "stuck" in the banks who didn't want to lend. The opposite of that would be where the fed takes m0 out of the system (m0 declines) but the banks at the same time DO want to lend, and therefore increase the m2 money supply and we would get inflation. at least that's my understanding...this stuff is complicated and I admit i don't fully understand it all :/

according to dalio's deleverging report, M0 money supply as a % of GDP went UP about 0.35% per year in the UK form 1947 to 1969...that works out to a total increase of M0 as % of GDP of about 7% over the 21 year period..fairly substantial imo, no? enough to cause 4% a year inflation? these are extremely rough numbers, but in the US now, M0 as % of GDP = 6%, M1 = 12%, M2 = 60%. So have your low base money go from 6% of GDP to 12% of GDP would effectively double the supply of money and get you about 4% annual inflation over 20 years, just like the UK had??? furthermore, a lot of this gets complicated when you look at short term time frames. M. Friedman as right that over the long run inflation is soley a monetary issue, but different willingness to lend at different levels of the money pyramid could easily cause a scenario where m0 declines, but because at the M2 level, banks are more willing to lend, we actually get inflation. over the VERY long run, those lending rates should even out, and therefore M0 is tied to inflation. But seems to me these different cycles of willingness to lend can last 20-50 years so...

anyone know this guys approximate returns for 2013 and 2014? I know its not been great, but just curious for tracking purposes.

are our children really going to have to be paying back our debt in any meaningful way? If we go from public debt of 100% of GDP to 50% of GDP over a 20 year period, thats only 1/40th of our wealth produced over the next 20 years that goes to paying down the debt? Is that really going to ruin lives? another question, which is actually serious, but may not sound that way. I see a lot of money printing discussion here. But if new printed fed notes are simply held in the banks reserves and not loaned out, is it really fair to call that "money printing"? M2 as a % of GDP have been fairly stable over the last few decades. I don't see a ton of money that is actually flowing all the way through to the public's hands richard koo had a whole book kinda addressing this very point. QE hasn't been as effective as say pure helicopter money b/c its all being held by the banks and not getting loaned out

I think the advantage over say paypal is that you could get around regulations and slow processing time that paypal would require. especially with cross border transactions. as far as why its pegged to the dollar, their idea is that you kinda gotta peg it to something, and the dollar has been one of the more stable assets in the world. If say we start to get hyperinflation and the nubit community realizes they should no longer peg to the now volatile US dollar, they can also peg to something else or release the peg via voting and let it float completely free in some imaginary far off world, if entire world was using nubits, then eventually, yes the nubit to us dollar peg would be broken and the holders of nushares would just vote on the supply of nubits in circulation. at least thats how i understand it. but the peg allows it to remain relatively stable during the rapid growth/adoption period...unlike bitcoin main concern i have is if demand drops by 90% over a period of say 3 years,which is entirely possible in early stages and is kinda happening now with bitcoin, then will there be enough "believers" that are willing to remove nubits from circulation in exchange for a high interest rate? i have to think about it more. In the example i posted above, they said "30% probability" that nubits will make a comeback, which would require 400% annual interest. what if its only a 5% chance? that implies over 2000% annual interest to maintain peg? seems fragile. but i'm not sure..have to think more on it

agreed, though in this case, the peg isn't maintained with a cash reserve (which inevitably runs out during a crisis). its maintained by a voting mechanism and interest rates charged by holders of nushares (as i understand it). it at least is somewhat new method. \ nubits are either created, or removed from the system in order to maintain a steady 1 nubit = $1 "peg". holders of nushares vote to release more nubits into the system as demand rises. Problem comes when demand falls. they address this in teh following way: "To demonstrate the robustness of the peg, let's imagine a future where NuBit demand is only 10% of its peak. It is obsolete and demand has been in decline for three years. Nearly everyone has given up on it. However, there are a handful of individuals who believe there is a 30% chance that NuBits will still have value in a year because they are NuShareholders and plan to implement a bold and daring plan to change the protocol to meet different needs than NuBits have in the past. These individuals would buy NuBits if there was 400% interest rate offered for one year. So it will be offered by NuShareholders and taken by the speculators, and the peg will stand at $1.00 US. When this large sum of NuBits is created and unparked after one year, then the situation is much worse if demand has not picked up due to the success of their bold plan to redefine NuBits. Perhaps then even these shareholders and speculators will give up on it. In that case NuBits would not be worth less, they would be worth nothing. And not many people would care or be affected. However, the system can handle even multi-year dips in demand gracefully and recover. All that is required is for some people to believe there is some chance that total demand will reach a new peak. This is a nominal peak, not inflation adjusted peak. So in a case where NuBit demand declined for three years and there was 13% inflation over those three years and an average of 4% annual interest was required to create sufficient demand for NuBits during those three years, then the amount of real value stored would not even have to quite reach its previous peak in order to push interest rates down to zero, signaling a healthy system." still seems complicated and subject to failing during a major crisis. In this way bitcoin is a lot more volatile but less fragile imo

the fed has about same asset size as % of GDP back in the late 1940's (about 20% of GDP then and now). As i understand it, the treasury gradually removed money (fed notes) from the system over a 30 year period. I definitely could be wrong on the mechanics of all this, but in 1945 fed held assets of 20% of GDP. by 1980's it was down to 5%. This was accomplished by taking money out of the system. The treasury must pay back the fed, which is done by issuing new treasury notes to the public in exchange for fed notes, but at a higher interest rate. The higher rate results is a net reduction of money held in public hands over the long term. M2 money supply actually dropped by about 15% of GDP from 1945 to 1985, which is the exact size of the fed balance sheet reduction. Main difference as i see it today, is that public and private debt is about 330% of GDP today. it was about 150% in the years after WW2. remains to be seen whether we can calmly delever

good discussion, forcing me to think over a few scenarios. wachtwood - i didn't mean my phrasing of "ONLY" to sound negative, though re-reading my comment it kinda did sound that way. Its the main benefit, and trustless exchange of value is the blockchain biggest and best invention imo something to think about with the midway scenario is that bitcoin specifically (though not necessarily blockchain tech in general) probably needs to hit a critical mass someday in terms of transaction volume. if its only used a a remittance service, then the size of that market may not be enough to fully secure the network to an acceptable level. Cost of 51% attack is eventually directly related to the number and cost of all transactions. remittance market world wide is about $500B. transaction fees of say 1% would be only $5B/year. Decently secure but definitely corruptible as well Then again if you're only holding the bitcoin for a few minutes or hours, the might mean you would accept a slightly less secure network? some other coin via proof of stake or something else may be better suited for that? just thinking outloud somewhat related, nubits is a new coin that attempts to address the volatility with two classes of coins that are tied together. one coin votes on the value of the other...which is set at $1. I have my doubts on its ability to "maintain the peg" in a crisis, etc, but its an interesting idea...still reading more on it. https://nubits.com/nushares/introduction

i guess you're right that if bitcoin is ONLY a means of xfering wealth across currency restrictions and nobody uses it as a store of value, then there's not much inherent value. if the avg holding period is very low (high velocity), you don't need much currency for a fairly large economy... in practice, i think it will be hard to get the holding period really really low, and that should provide at least a base for a quasicurrency that people hold in the "offshore internet". i could definitley be wrong about that though

i never got the whole bitcoin as ONLY a way to xfer money. Having a blockchain with a bunch of miners is an incredibly INEFFICIENT way to manage a database. Pretty much the only benefit is that its relatively trustless. if its just xfering money, then paypal or some similar centralized tech would be much cheaper. i'm doubling down on the initial thesis. Bitcoin's main function (IF is suceeds) is as a currency. Its not primarily a replacement to western union or paypal. Its a replacement for currencies. Satoshi didn't include a news article about western union in the genesis block. he included a news article about something else.

I posted this a while back on reddit. A lot of it is just wild speculation and guessing at short term price for bitcoin, but the main long term thing to know is that mtgox, the exchange that was "hacked" a while back, was actually committing massive fraud and artificially pumped up the price of bitcoin, basically causing both 2013 bubbles. Bitcoin still has a chance to succeed, but just need to temper expectations a bit. anyways, more in the link below (read comments as well for info):

i wrote a few thoughts a while back. at least as i understand it.. Prob got a few things wrong but here it is anyways.

can you run some backtests for us? have you been able to match greenblatts results? here's a good thread on backing into greenblatts exact formula: http://justadrone.blogspot.com/2011/03/calculation.html

not sure if this is you, but same question asked here:

http://www.mauldineconomics.com/frontlinethoughts/is-bitcoin-the-future/

agree with you...but I do think its a bit different this time. In 2000 there were two main market segments that were very undervalued in relative terms: Small caps, and value stocks, with small value stocks being particularly undervalued. Looking through the backtests of greenblatts magic formula, the small cap screen crushed the market in 2001 and 2003. I don't see those type of inbalances now. Maybe there's another market segment i'm not looking at, but seems to me that when looking at P/B of large vs small caps, they are in a somewhat normal range. I'm still fully invested, but not going to see 60+% annual returns as we did in the small cap value stocks in 2001-2003 check out page 2 below for historical P/B of Russell 2000 vs 1000 http://www.principalglobal.com/us/download.aspx?id=105519