{"id":17064,"date":"2016-01-29T11:31:44","date_gmt":"2016-01-29T16:31:44","guid":{"rendered":"http:\/\/olduvai.ca\/?p=17064"},"modified":"2016-01-29T11:31:44","modified_gmt":"2016-01-29T16:31:44","slug":"somethings-gone-horribly-awry","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=17064","title":{"rendered":"Something\u2019s Gone Horribly Awry"},"content":{"rendered":"

Something\u2019s Gone Horribly Awry<\/a><\/h3>\n
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The S&P 500 has fallen 7.37 percent so far this year.\u00a0 What to make of it\u2026<\/p>\n

Naturally, some people find falling stock prices to be unpleasant.\u00a0 Others find them distressing.\u00a0 Another way to look at falling stock prices, however, is like a high-fiber diet.\u00a0 The effect is necessary to a healthy functioning system.<\/p>\n

The simple fact is that stock prices, fueled by speculative liquidity, have long since outrun the real economy.\u00a0 The disconnect between the two has been widely observable.\u00a0 The economy\u2019s lagged, incomes have stagnated, yet stocks have soared.<\/p>\n

Thus the present, ever so slight reduction in liquidity, and the subsequent lowering of stock prices, is having a cleansing influence.\u00a0 For it will serve to eliminate marginal businesses, and trim the fat from larger businesses.<\/p>\n

Consequently, business owners, managers, and workers of marginal undertakings will have to redirect their efforts into something new\u2026something that\u2019s of greater value.\u00a0 For example,\u00a0Walmart<\/a>\u00a0recently announced it would be closing 269 stores and laying off 16,000 workers.<\/span>\u00a0 Obviously, we don\u2019t wish any harm to hard working Walmart employees.\u00a0 But we\u2019re also confident many of these 16,000 people will now find a new, more meaningful, and more prosperous purpose in life.<\/p>\n

Though it can be painful at times, eliminating and minimizing wasteful activities is how the world becomes more affluent.\u00a0 On the other hand, propping up negligible endeavors with cheap credit ultimately subtracts wealth from the world.<\/p>\n

Mean Reversion<\/strong><\/p>\n

How much more stocks will fall, no one really knows for sure.\u00a0 Perhaps they\u2019ve already fallen as far as they will.\u00a0 But we wouldn\u2019t bet our life savings on it.<\/p>\n

This is merely conjecture, of course.\u00a0 But we do recognize that even with the 7.37 percent drop year-to-date, the S&P 500\u2019s\u00a0Cyclically Adjusted Price Earning<\/a>\u00a0(CAPE) Ratio is 23.97.\u00a0 We also recognize that the CAPE Ratio\u2019s mean, going back to 1881, is 16.65.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Something\u2019s Gone Horribly Awry The S&P 500 has fallen 7.37 percent so far this year.\u00a0 What to make of it\u2026 Naturally, some people find falling stock prices to be unpleasant.\u00a0 Others find them distressing.\u00a0 Another way to look at falling stock prices, however, is like a high-fiber diet.\u00a0 The effect is necessary to a healthy […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[12043,487,1296,11763,1716,4806,1138,5221,5350],"class_list":["post-17064","post","type-post","status-publish","format-standard","hentry","category-economics","tag-economic-prism","tag-liquidity","tag-mean-reversion","tag-mn-gordon","tag-sp-500","tag-speculation","tag-stock-market","tag-stock-prices","tag-walmart"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/17064","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=17064"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/17064\/revisions"}],"predecessor-version":[{"id":17065,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/17064\/revisions\/17065"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=17064"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=17064"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=17064"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}