Yup, you also want to look at macroeconomic conditions around the world, tech trends, demographics, etc.

For example, 10 years ago we had quantitative easing done by US/Europe, which led to subprime loans. Now, all of the major economies around the world is tapped out with QE, so deflation is the theme going forward

Also, 10 years ago the dollar prime rate was 0%. Now it's close to 2%. That drives the emerging market capital outflow back to United States, since there is a great need to pay back dollar-denominated loans before rates go up even higher . This means as opposed to 10 years ago where there was capital diffusion from US into the emerging markets, now there's capital consolidation back into US, leading to great FDI for US.

10 years ago, US had the dual threat of energy crisis and offshore/globalization. today, US is the major oil/energy exporter, and robotics/automation/tariffs is bringing factories back to US.

"For example, 10 years ago we had quantitative easing done by US/Europe, which led to subprime loans."

QE did not cause subprime loans - QE was the response to the effects of the subprime loan era.

There was no QE before the liquidity crisis and subsequent economic recession, although it had been discussed academically.

Also the US federal government has been spending an extra $1 trillion in stimulus into the economy since 2009. We've had continuing budget resolutions since the ARRA was passed, and those always continue spending at the prior year's level. This is why the deficit went up $10 trillion. Or, if you're a half full kind of person, it's why private sector and foreign savings have gone up $10 trillion. Unfortunately it doesn't appear much of those new financial assets ended up in the hands of the so-called middle class.

If US is the beneficiary of the past few years of emerging markets deleveraging and economic stimulus, middle class is a big recipient of the benefits. For example, any middle class who invested in the stock market would have seen great returns, maybe close to 10X if they invested in amazon, netflix, or apple. also, US middle class income has been increasing, reaching highest level in the last year: https://www.washingtonpost.com/business/economy/us-middle-cl....

I am honestly curious... where does that income come from? We know it doesn't come from wages, because median wages of the lower 90% have risen less than 2% since 1980. Since the statistic is based on families, is it due to a larger number of 2-income families out of necessity?

For those of is comfortably in the top quintile, this is no doubt true. I'm certain many of us who post here have done quite well over the last decade. However the historical American middle class has, by and large, not benefited nearly as much. The vast majority of the gains have been captured by the top 0.1%.

Please don't mistake me for some kind of commie, PG's essay on the necessity for income inequality to drive innovation is convincing. But that doesn't mean we should celebrate shameless cronyism, kickbacks, and rent-seeking either.

Growing middle class income is nice, but income is a very poor metric to use to determine economic class. Net worth is what really matters.

Er, no. 25 years ago we had Wall Street championing computer backed loan securitization, and repackaging of the those instruments into CDO's etc. That led over time to the subprime loans - as by creating the means of providing more debt instruments, Wall Street them had to find more borrowers. Which didn't end well - it never does. QE was done to stop the financial system imploding when those loans defaulted.

To explain the deflation story especially over the last 4 or 5 years, you need to look at the drop in Oil Prices - which as you point out, is primarily due to fracking and the US going from the #1 oil importer in the world to a small exporter. I wouldn't call the export aspect major statistically, but the change in oil trade terms certainly is.

> Now, all of the major economies around the world is tapped out with QE

Tapped out?

1. Kuroda and Draghi are merely taking a breather. BOJ and ECB balance sheets were still growing as recently as April 2018. SNB shows no signs of ending their relentless buying of the QQQs.

2. No global central banks are prevented from restarting QE or QE-like programs at any time of their choosing. The very second deflation again becomes a threat, you can bet your ass that Powell, Kuroda, and Draghi will step on the gas.

"Tapped out" implies limits to the volume of beer in the keg. Central banks have no limits. It is extremely trivial to begin printing money again if these governors/presidents will it so.

The BOJ will eventually run out of domestic bonds to buy (at around 50% now) They also hold almost 80% of japanese ETFs.

What happens when they buy all 100% of ETFs and bonds? Venezuela?

https://www.japanmacroadvisors.com/page/category/economic-in...

https://www.zerohedge.com/news/2017-09-11/wtf-chart-day-boj-...

As long as the USD is the global reserve currency, the Fed can print its way to inflation at will. Even the most diehard bears during the last recession conceded deflation required the rejection of the USD as the world's reserve currency resulting in the nullification of the power of the Federal Reserve.

> deflation is the theme going forward

I sure haven't seen it. The price of gas, rent, food, etc. have gone nowhere but up for me. Is there any sector of the economy where deflation is actually happening right now?

But it is a reasonable indicator. In the absence of superior evidence, it is better to intelligently work from past data than it is to throw darts.

No, it isn't. Throwing darts is probably actually a better way to make predictions about a stochastic process than naive chartism.

I'm not going to rehash the finer points of a debate that stubbornly refuses to die among armchair economists online. But for the benefit of everyone else reading this thread:

1. The market, and the macroeconomic system in general, is not a purely stochastic process. This is a meme.

2. If by "naive chartism" you mean technical analysis, then sure, I agree. But if you're attempting to reduce the entirety of academic and industrial economic theory and practice to "naive chartism", then your middle brow dismissal here is both incorrect and breathtakingly arrogant.

Our entire economic system is predicated on the idea that there exist inefficiencies that can be profitably capitalized on through cause and effect. No one professionally or academically familiar with this idea claims it's a guarantee, but they also don't dismiss the concept of past data being a useful but imperfect measurement for the future state of things.

Even Fama walked back from the strong EMH, and to claim that we can derive no insight about the future from the past is to utterly dismantle everything we know about the credit debt cycle and market macrostructure. If you'd like to believe that then more power to you, but implicit in that belief is a fair amount of hubris.

Since you seem like you might know, I am curious... those who believe that inefficiencies in the market are what creates profit, and that markets will naturally act to reduce inefficiencies... how do they explain skyrocketing increases of profit and decades-long persistence and growth of profit which is supposed to be quickly reduced to zero by the optimizing market? It seems like a really obvious disproof of the concept on its face, but the concept doesn't seem to be losing any traction. Are companies simply better at generating inefficiency than the market is at eliminating it?

Food for thought. Thanks.

You appear to be making an effort to come off as intelligent and I thought you might like to know that your accusations of arrogance when your post drips with it seriously undermines that.

You fail to grasp a fundamental reality: data about the past can only tell us about the past. Data about the present can be useful for making predictions. Some of it is so useful that using it is criminally prosecuted by the SEC.

By "naive" I mean any approach that relies solely on trends rather than an actual understanding of underlying causal factors. Sadly there are so many of those factors that a correct analysis is virtually impossible, but that's no excuse not to try since some factors tend to dominate others and those can sometimes be found.

https://s3.amazonaws.com/gurufocus_userupload/508204100.jpg

Your third paragraph was enlightening and explained your position reasonably well. I'm not sure I'm convinced, but it seems like an interesting discussion.

I feel obliged to downvote you because of the first two paragraphs, why did you add them? You were trying to refute what you considered an "accusation of arrogance" with the most arrogant opening paragraph possible?

I don't think this response should be getting downvoted; I'll upvote it for the third paragraph, which I largely agree with.

We can agree to disagree on the exact definition of "virtually impossible", but in the broad strokes I think we're both saying some factor analysis can be sometimes productive. In particular, I definitely agree that 1) an "actual understanding of underlying causal factors" is imperative, and 2) an approach based on trends (and trend following) is naive.

Less is more. Your third paragraph makes a strong argument and cuts right to the heart of the disagreement. The rest is a distraction.

Other commenters already pointed out the main thing, but I need to let you know that we ban accounts that include personal attacks in their comments, so could you please make sure not to do that?

https://news.ycombinator.com/newsguidelines.html