“Investors Will No Longer Have a Bias in Favor of Stocks Once We Permit Honest Posting and It Is Possible for Them to Become Educated as to the Realities. This Means That They Will Demand That Banks Offer Higher CD Rates or They Will Refuse to Buy CDs. The Banks Will Comply.”

Set forth below is the text of a comment that I recently put to another blog entry at this site:

and stocks would be indistinguishable from bonds.

The returns on non-stock asset classes ARE generally determined by market forces (rather than by the productivity of the U.S. economy).

So there is a legitimate point to be made that, if the risk of stock investing was reduced by 70 percent and the long-term return on stocks remained stable, there would need to be some adjustment in the returns paid by asset classes like certificates of deposit.

If stocks carry little risk and CDs carry little risk, you can’t have stocks paying 6.5 percent real and CDs paying 3 percent real. Those numbers need to move closer to each other.

Please note, though, that it is not the stock number that is likely to move. Our economy is an established one. The productivity of established economies is generally stable. The stock number might move down to 6 percent or so. It is not likely to move much lower than that.

So for the numbers to come closer together, the return on CDS must INCREASE.

The banks that sell CDs offer as low a return as they can get away with and still sell the CDs. Today, they can sometimes get away with paying very low rates of return because the relentless promotion of Buy-and-Hold strategies has made investors so emotional about stock investing. All that changes once we open the internet up to honest posting on safe withdrawal rates and scores of other critically important investment-related topics.

Investors will no longer have a bias in favor of stocks once we permit honest posting and it is possible for them to become educated as to the realities. That means that they will demand that banks offer higher CD returns or they will refuse to buy CDs. The banks will comply.

We will all not only enjoy far higher returns from stocks at greatly reduced risk following the end of the Ban on Honest Posting. We will also enjoy higher CD returns. It’s a win/win/win/win/win.

Rob

Comments

  1. Anonymous says

    Here is yet another post that shows that you have no clue as to what you are talking about. The bank rates are low because of the Fed lending rates.

  2. Rob says

    I am grateful for you taking time out of your day to share your thoughts with us, Anonymous.

    But my take is that all you are doing is citing conventional wisdom as if it were Truth.

    If all that mattered were Fed lending rates, every bank would offer CDs at precisely the same rate.

    They don’t.

    The banks issuing CDs are responsive to competitive pressures.

    So it seems to me that, if stocks became less risky, banks would need to offer higher rates of return to keep their CD returns competitive with the returns offered by low-risk stocks.

    Also, please do not forget that Fed decisions will be influenced by the “revolutionary” (Shiller’s word) changes we will be seeing once honest posting on the last 33 years of peer-reviewed research in this field is both permitted and encouraged on every web site on the internet. So we would probably be seeing big changes in the returns offered by CDs even if the Fed were the sole influence on CD returns.

    As for me not knowing what I am talking about, is it your view that I just got wildly lucky on that safe-withdrawal-rate thing?

    My best and warmest wishes to you, my long-time Goon friend.

    Rob

  3. Anonymous says

    So now you seem to admit the Fed role as you say it will be changed by what Shiller has said. Of course, this is the same Shiller that said you cannot time the market with CAPE (and no, Rob, he did not add your words of short term as a qualifier
    Ike you misrepresent). This is also the same Shiller that has 50% of his money in the market (sounds like he is a buy and hold kind of guy).

    Nice try in trying to wiggle out of this one.

  4. Rob says

    So now you seem to admit the Fed role as you say it will be changed by what Shiller has said.

    I don’t say that the Fed has no role. I say that, in an environment in which stocks are a virtually risk-free asset class and yet still offer returns of 6.5 percent real, the return on CDs is going to have to go up. There’s just no way around it, Anonymous. If CD rates did not go up in that environment, banks would no longer be able to sell CDs.

    I mean, come on.

    Rob

  5. Rob says

    This is also the same Shiller that has 50% of his money in the market (sounds like he is a buy and hold kind of guy).

    This is pure, 100 percent, complete nonsense.

    I am this morning working on an entry for my column at the Value Walk site in which I will offer observations on comments that have been made all over the internet re the awarding of the Nobel Prize in Economics to Shiller. Not one of them suggests in any way, shape or form that Shiller is a Buy-and-Holder. Fama is the Buy-and-Holder. Fama and Shiller say OPPOSITE things re how stock investing works.

    Shiller is the farther thing from a Buy-and-Holder that you can find. I am the only person I can think of who could possibly be described as being less of a Buy-and-Holder than Shiller. And all of my ideas on how stock investing are rooted in what I learned from Shiller!

    Holy moly!

    Rob

  6. Rob says

    Of course, this is the same Shiller that said you cannot time the market with CAPE (and no, Rob, he did not add your words of short term as a qualifier like you misrepresent).

    Do you think that Shiller has never read his own research, Anonymous? Shiller was the first person to publish research showing that long-term timing always works. It was the paper that Wade Pfau and I published together that shows that in a direct, practical way. But it was Shiller’s 1981 paper (the paper for which he won the Nobel prize) that showed that this was so in theory.

    Shiller is the grandfather of Valuation-Informed Indexing. The entire reason why I took on this job is that when you Goons began attacking me back at the Motley Fool board, I went looking for help at sites that explored the implications of Shiller’s work . I learned that there were none! That stunned me. I saw the huge opportunity just sitting out there for anyone who had the balls to pick it up. And so I worked up the courage to do it myself! The rest is history!

    You are right about one thing, Anonymous. You say that Shiller himself does not make a point of spelling out the distinction between short-term timing (which never works, according to the peer-reviewed academic research) and long-term timing (which always works, according to the peer-reviewed academic research in this field). Neither does Jack Bogle. Neither does Scott Burns. Neither does Bill Bernstein. Neither does Larry Swedroe. Neither does anyone outside of yours truly.

    I wonder why.

    Do you think it might have something to do with the reign of hate and abuse that the Wall Street Con Men and their Internet Goon Squads direct at anyone who makes this very obvious and very important distinction? Do you think your threats to kill family members of anyone who posts honestly on this question might have something to do with this strange reality? Do you think your demands for unjustified board bannings might have something to do with this strange reality? Do you think that the tens of thousands of acts of defamation that you have advanced might have something to do with this strange reality? Do you think that your threats to get academic researchers fired from their jobs might have something to do with this strange reality?

    Do you think that the reason why the Boglheads split off from the Vanguard Diehards board when I announced plans to attend the annual meeting and ask Jack Bogle why he doesn’t talk about this distinction in every speech he gives might have something to do with this strange reality?

    Do you think that the reason why you threatened to get Wade Pfau fired from his job after he co-published research with me pointing out the importance of this distinction might have something to do with this strange reality?

    Yeah, I think so too.

    When the Campaign of Terror is brought to a full and complete stop (by the close of business today???), I think it would be fair to say that Jack will be making this distinction in every speech he gives. And so will Bernstein. And so will Swedroe. And so will Burns. And so will thousands and thousands of others. And so of course will Shiller.

    And there will of course be no more Buy-and-Hold. There will be Valuation-Informed Indexing instead.

    And there will be no more economic crisis.

    And we will all be enjoying the greatest economic boom in U.S. history. And the risk of stock investing will be reduced by 70 percent for every last one of us. And we will all be able to retire five to ten years sooner than we ever imagined possible in The Dark Ages of Investing Analysis (The Buy-and-Hold Era).

    And you will be going to off to serve your long prison sentence for your multiple acts of financial fraud.

    Whew!

    And you wonder why I am such a big fan of the idea of permitting honest posting at every board and blog on the internet!

    Rob

  7. Evidence Based Investing says

    I say that, in an environment in which stocks are a virtually risk-free asset class and yet still offer returns of 6.5 percent real, the return on CDs is going to have to go up.

    If stocks were a virtually risk-free asset then the price that investors would be willing to pay would go up and hence the return would be lowered.

  8. Rob says

    Again, Evidence, you are just citing Buy-and-Hold marketing slogans as if they were Truth. If all the Buy-and-Hold marketing slogans were Truth, the Buy-and-Holders would not have gotten the safe withdrawal rate so wildly wrong. I mean, come on.

    The return on stocks is determined by the profits of the underlying companies.

    It is as simple and as complicated as that.

    The marketing slogans of the Wall Street Con Men and their Internet Goons Squads don’t change that basic and obvious reality.

    That’s my sincere take re this terribly important matter, in any event.

    I am tempted to ask you to show us the URL of the peer-reviewed academic research supporting these marketing slogan Truths. But we both know that Academic Researcher Wade Pfau was not able to find a single study supporting this smelly Get Rich Quick garbage when he spent a good bit of effort trying to track one down. And we both know how you Goons (with the implicit support of Jack Bogle) responded to Wade when he reported on that important truth at the Bogleheads Forum.

    But Buy-and-Hold is a legitimate strategy and we should take the word of the Wall Street Con Men on every issue they address.

    That makes perfect sense!

    Rob

  9. Anonymous says

    Shiller is the farther thing from a Buy-and-Holder that you can find.

    Except by his actions regarding his own financial accounts. But you know, other than that…

    LOL

    Shiller.. does not make a point of spelling out the distinction between short-term timing and long-term timing… I wonder why.
    Do you think it might have something to do with the reign of hate and abuse that the Wall Street Con Men and their Internet Goon Squads direct at anyone who makes this very obvious and very important distinction?

    Rob’s verdict: Shiller is just another cowering Goon, living in fear, like anyone who says or does things beyond Rob’s narrow ability to comprehend. Rob, you remind me of those judges of the Salem witch trials — verdict always the same, sentence always the same, outcome always the same. “Burn him, he’s a witch!”

  10. Rob says

    Rob’s verdict: Shiller is just another cowering Goon, living in fear

    No one who lives in the United States has ever seen anything like the 12-Year-Long Campaign of Terror against those of us who have posted honestly on safe withdrawal rates and other crtitically important investment-related topics on the internet, Anonymous.

    Death Threats. Demands for unjustified board bannings. Tens of thousands of acts of defamation. Threats to get academic researchers fired from their jobs.

    There are reasons why the people of the United States elected to make it a felony for anyone to participate in an act of financial fraud of that magnitude.

    There is a reason why you and your fellow Goons and perhaps a good number of the Wall Street Con Men will be going to prison for a long time following the next price crash.

    Yes, Shiller fears all that hate and anger and abuse.

    He is one of the humans. ALL the humans fear that sort of thing, as we have seen for 12 years now.

    And please note that it is ONLY Buy-and-Holders who embrace such acts of hate and anger and abuse. We have never seen the advocates of any other investing strategy embrace such tactics on even a single occasion.

    I wonder why.

    Rob

  11. Evidence Based Investing says

    The return on stocks is determined by the profits of the underlying companies.

    The return on stocks is determined by the price that you pay for the stocks. A guy called Rob Bennett told me that.

  12. Rob says

    In that case you had better go by what that Rob Bennett fellow says, Evidence.

    My understanding is that the Lindaurheads and the Greaney Goons hate that Rob Bennett fellow with a burning and all-consuming hate.

    Anyone who is so hated by you Goons has got to be a pretty darn smart and sweet-natured and ethical guy, according to everything I have seen appear before me on my computer screen over the course of the past 12 years.

    Please take good care, old friend.

    Rob

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