Upcoming Economic Bubble

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Adrian P
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Upcoming Economic Bubble

Post by Adrian P » Tue May 26, 2015 12:42 am

Hello

I am 25 years old recent university graduate who just got a stable job last month (living in Canada).

I have no debts and currently have $9,500 in my bank savings account that I am planning to invest on canadian stock index funds, U.S stock index funds, and Canadian bond index funds.

I did my own research and reading and came up with the conclusion that index funds are the best investments over a long period of time.

However, I heard from my uncle who is a financial advisor in Korea that the world economy is in a huge bubble and U.S, Europe, and Asia (especially Japan) countries are printing huge amount of money to prevent the market implosion which will eventually happen in a few years? (I'm sorry I know nothing about economy).

He agreed that low cost index funds are a very smart choice... but he recommended that in this period of time I should just buy gold until the currency plummets and recession comes... and then sell gold and buy stock index funds at a discounted price during the recession period.

Obviously, I am just a 25 years old kid who knows nothing about economy and investing... so I get easily swayed around.

What do you guys think about this issue?

Sorry for the unorganized writing.

Call_Me_Op
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Re: Upcoming Economic Bubble

Post by Call_Me_Op » Tue May 26, 2015 6:31 am

I think it's a bad idea. It's called market timing, and nobody has been able to do it consistently.

With the relatively small amount of money you have, I would suggest that you invest your existing funds in a diversified equity allocation (first putting aside emergency funds in a cash account), and add to the equities as you obtain additional funds.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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bottlecap
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Re: Upcoming Economic Bubble

Post by bottlecap » Tue May 26, 2015 6:40 am

Suggesting he knows when to buy gold and get back into stocks is exactly like someone who says they know when to buy small cap stocks and then get back into large cap stocks, which is exactly like someone who tells you they know when to buy one stock and not another, which is not indexing.

It is all apart of the same mindset that the performance of an asset, or particular subsets of assets, can be predicted with consistency. This has never held to be true.

Good luck,

JT

bcjb
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Re: Upcoming Economic Bubble

Post by bcjb » Tue May 26, 2015 7:41 am

Welcome to the forum!

If you're scared that we're (about to be) at a market peak, you could move money in slowly to spread the risk. It's called DCA - dollar-cost-averaging - and you can find more information about it in the wiki or online. However, in your situation (young, low net worth, very high human capital), I'd just buy an index fund and get it over with. The money you will invest in the coming years will dwarf your initial investment. Just invest as much as you can as soon as you can. (Caveat: don't forget to first set aside an emergency fund in cash.)

Two Headed Mule
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Re: Upcoming Economic Bubble

Post by Two Headed Mule » Tue May 26, 2015 8:06 am

In my experience, people making grandiose market forecasts based upon Fed and central bank "money printing" tend to have a very tenuous understanding of the actual economic forces at work around the globe.

Your uncle is probably a smart person. However, what you need to understand as a relative newcomer is that the trillions and trillions of US/European stocks/bonds are currently being held by someone. Those 'someones' tend to be very, very, very, very sophisticated people/institutions -- cumulatively, much more sophisticated than your uncle. By virtue of their willingness to hold these assets at current valuations, they implicitly disagree with your uncle's investment thesis. That should, at the least, give you some pause.

And how long has your uncle been singing this tune? Gold is down something like 40% from its highs of a couple of years ago (and stocks -- US at least, up significantly) in case you were under the impression that gold is somehow a stable store of value.

Mule

Valuethinker
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Re: Upcoming Economic Bubble

Post by Valuethinker » Tue May 26, 2015 8:12 am

Adrian P wrote:Hello

I am 25 years old recent university graduate who just got a stable job last month (living in Canada).

I have no debts and currently have $9,500 in my bank savings account that I am planning to invest on canadian stock index funds, U.S stock index funds, and Canadian bond index funds.

I did my own research and reading and came up with the conclusion that index funds are the best investments over a long period of time.

However, I heard from my uncle who is a financial advisor in Korea that the world economy is in a huge bubble and U.S, Europe, and Asia (especially Japan) countries are printing huge amount of money to prevent the market implosion which will eventually happen in a few years? (I'm sorry I know nothing about economy).

He agreed that low cost index funds are a very smart choice... but he recommended that in this period of time I should just buy gold until the currency plummets and recession comes... and then sell gold and buy stock index funds at a discounted price during the recession period.

Obviously, I am just a 25 years old kid who knows nothing about economy and investing... so I get easily swayed around.

What do you guys think about this issue?

Sorry for the unorganized writing.
Adrian

People have been predicting these sorts of collapses since I started investing in the late 1970s. During which time we've had the biggest bull market in world history. People are always predicting a crash (google Joe Granville some time).

And we've had some bad ones. Believe it or not, for young people in Canada the recession 1980-82 and 1990-92 were worse than the current one-- a lot worse.

And we saw in 2008-09 that the world financial markets can glimpse oblivion-- dropping 30-50% in a few months.

But you are young, and you need to be optimistic. Even the 1930s we eventually got out of (Canadian unemployment in 1933, which measured men only, was about 33%). I worry about Canada being left behind in 'the Asian century' but I don't worry about (global) stock markets doing well on a 30 year view.

Market implosion? Maybe. That's why you should globally diversify as much as possible. Japan has been a basket case for the last 25 years, but the US stock market has done well.

Gold is an example of a low return asset. There's a case for having 5% of your money in gold stocks or funds, but not more than that.

In your shoes, I would be buying global stock markets using index funds, slowly over time. We have another crash, and your monthly investment policy will mean you will be buying stocks at much cheaper rates.

Although the rates are not attractive, I also like Canadian Real Return Bonds. Because, as long as these are in RRSP or a tax protected account, you can never lose money on them.

Some day you will want to buy a property, the right savings vehicle is short term Canadian government bonds or bank CDs, but to me, at least, Toronto and Vancouver look like huge bubbles waiting to pop (especially in condos) and Calgary and Alberta are going to get hit hard by provincial cutbacks and by low oil prices. So don't rush in on this-- there's no point buying a property unless you plan to live in it for 5-10 years.

Valuethinker
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Re: Upcoming Economic Bubble

Post by Valuethinker » Tue May 26, 2015 8:15 am

Adrian P wrote:H

He agreed that low cost index funds are a very smart choice... but he recommended that in this period of time I should just buy gold until the currency plummets and recession comes... and then sell gold and buy stock index funds at a discounted price during the recession period.
.
Shortly after I started investing, gold went to over $1000 an ounce in 1980.

It then sank, steadily, down to about 350 dollars in the same time as the US stock market went up over 15 times. It then rallied, and got nearly to $2000 a couple of years ago, and is now back around $1200.

So in 25 years I would have made roughly 1.2x my money, with no dividends. Whereas my stocks would have gone up something like 15 times (taking the Dow from below 1000 to over 15000) *plus* say an average 3% per annum from dividends.

If gold is a good investment, it is taking a long time to show it.

kenner
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Re: Upcoming Economic Bubble

Post by kenner » Tue May 26, 2015 8:23 am

Valuethinker wrote:
Adrian P wrote:H

He agreed that low cost index funds are a very smart choice... but he recommended that in this period of time I should just buy gold until the currency plummets and recession comes... and then sell gold and buy stock index funds at a discounted price during the recession period.
.
Shortly after I started investing, gold went to over $1000 an ounce in 1980.

It then sank, steadily, down to about 350 dollars in the same time as the US stock market went up over 15 times. It then rallied, and got nearly to $2000 a couple of years ago, and is now back around $1200.

So in 25 years I would have made roughly 1.2x my money, with no dividends. Whereas my stocks would have gone up something like 15 times (taking the Dow from below 1000 to over 15000) *plus* say an average 3% per annum from dividends.

If gold is a good investment, it is taking a long time to show it.
VT,

You are a treasure.

Morik
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Re: Upcoming Economic Bubble

Post by Morik » Tue May 26, 2015 8:23 am

Unless you somehow are able to predict what the market is going to do (which no one seems to be able to do consitently; i.e., when they do get it right, they got lucky), you should not set any part of your allocation strategy based on the current market conditions (nor on where you think the market is going to go).

The indexing approach is basically saying:
- I don't know what the market is going to do.
- The majority of the market is held by institutions that spend a TON of time and money figuring out what they should be invested in.
- I don't have any information or ability to do better than they do.
- So I'm just going to invest in the same things they do (as a whole). (I.e., I'm going to invest in an index fund; my allocation will be based on how much each investment is held by the market as a whole.)

The only things you need to worry about are:
- How much risk you are comfortable with (at each 'notch' of risk you are comfortable with, you can get a bit more EXPECTED return, but with more variance, which means you could end up losing a lot, but if you stick it out long enough you are likely (but not guaranteed) to see more return.)
- How much time you have before you need the money (less time -> take less risk)
- How much international exposure. Can either just go with global market capitalization, which almost no one seems to recommend, or go with less international exposure. People seem to recommend increasing exposure to your home currency to help mitigate currency risks, but I haven't looked into it enough to understand that argument. (I just do global market cap values, no extra weight towards my home currency; I figure my job & house are giving me enough extra exposure there.)

Those 3 decisions result in figuring out how much stock/bond allocation, and how to split your stock between domestic & international stock. (This is for the 3-fund portfolio.)

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Re: Upcoming Economic Bubble

Post by Grt2bOutdoors » Tue May 26, 2015 8:26 am

Write back to your uncle:

Dear Uncle,

Thank you for informing me about the upcoming economic bubble. What are the alternatives to investing or saving if all paper assets are overpriced? Invest in hard commodities? My question then is how will other folks be able to pay for such goods? Bartering? If paper instruments are worthless, what would be a worthy instrument to accept for payment?

Your loving nephew,


Let us know what the response to that is. The above is not a joke by any means, remember money acts as a store of value and is also used as a payment transfer instrument. If you are holding gold or other hard assets, what will you accept as the means for payment if 98% of the world only has paper assets for which they use as a payment vehicle. You will be one of the few holding hard assets with no easy means of liquidity - what then? Will you take payment in the form of labor, that brings you back to the idea of bartering. Good Luck with that - in return for your service, I'll pay you with two hens today. How much chicken can you eat in a year? :)
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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nisiprius
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Re: Upcoming Economic Bubble

Post by nisiprius » Tue May 26, 2015 8:28 am

I never take any important actions based on macroeconomic predictions. Nobody know the macroeconomic future well enough. In order for your uncle's advice to work, three things all need to unfold as planned: first, the currency must plummet. Second, there must be a recession. Third, the price of gold must increase. And you must be able to see each of them happening and time your actions accordingly.

If it were easy to see these things, almost nobody would have owned stocks in 2008-2009. If it were easy to see these things, almost everyone would have owned gold from 2000-2010 and then sold sometime around 2010-2012. Now, personally, I did own stocks from 2008-2009 and I did not see the crash coming. And I did not own gold from 2000-2010 (or before, or since). You must decide for yourself if this is because I'm just blind and stupid, or whether these things are not easy to see and take people by surprise.

If you can't time the market yourself, you have a second problem that's just as difficult--how do you identify the people who can, and separate out the true seers from, say, Peter Schiff, who predicted in 2009 that US stock was heading a lot lower in 2009, 2010 and 2011 as well, and in 2010 that "we probably won't make it to 2012."

I'm sure I can't make macroeconomic predictions, and I'm sure I can't tell the people who can, so I invest based on the assumption that I don't know the pattern or timing in which things will unfold. I stay the course. I picked an asset allocation I'm comfortable with, and I don't change it--or, if I do, only very slowly and very gradually. I try not to be caught up in the emotion of the moment and do something because "everyone" says something is sure to happen.

There is really a lot of evidence that "staying the course" is wiser than trying to make changes in hopes of doing better.

You should do your very best to decide for yourself, gathering information for yourself, and looking at it for yourself and not through anybody else's eyes. It's your money (unless your uncle is promising to reimburse you if his advice doesn't work out).
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

kenner
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Re: Upcoming Economic Bubble

Post by kenner » Tue May 26, 2015 8:38 am

Morik wrote:Unless you somehow are able to predict what the market is going to do (which no one seems to be able to do consitently; i.e., when they do get it right, they got lucky), you should not set any part of your allocation strategy based on the current market conditions (nor on where you think the market is going to go).

The indexing approach is basically saying:
- I don't know what the market is going to do.
- The majority of the market is held by institutions that spend a TON of time and money figuring out what they should be invested in.
- I don't have any information or ability to do better than they do.
- So I'm just going to invest in the same things they do (as a whole). (I.e., I'm going to invest in an index fund; my allocation will be based on how much each investment is held by the market as a whole.)

The only things you need to worry about are:
- How much risk you are comfortable with (at each 'notch' of risk you are comfortable with, you can get a bit more EXPECTED return, but with more variance, which means you could end up losing a lot, but if you stick it out long enough you are likely (but not guaranteed) to see more return.)
- How much time you have before you need the money (less time -> take less risk)
- How much international exposure. Can either just go with global market capitalization, which almost no one seems to recommend, or go with less international exposure. People seem to recommend increasing exposure to your home currency to help mitigate currency risks, but I haven't looked into it enough to understand that argument. (I just do global market cap values, no extra weight towards my home currency; I figure my job & house are giving me enough extra exposure there.)

Those 3 decisions result in figuring out how much stock/bond allocation, and how to split your stock between domestic & international stock. (This is for the 3-fund portfolio.)
Rarely has so much wisdom been expressed in so few words.

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nisiprius
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Re: Upcoming Economic Bubble

Post by nisiprius » Tue May 26, 2015 8:55 am

Adrian, two more thoughts.

Thought #1. If you decide for yourself that you want to have a substantial holding in gold, I strongly suggest that you look into something called Harry Browne's "Permanent Portfolio." I do not use this portfolio myself, it's not my thing, this is not any kind of recommendation. But, there is a book about it by Craig Rowland and J. M. Lawson, and Taylor Larimore has called it a "gem." He also has a website at http://www.crawlingroad.com . I repeat, I don't agree with this but it a) has a large gold allocation, and b) generally falls in with Boglehead "stay-the-course" strategy. There is also a mutual fund and an ETF that implement versions of the Permanent Portfolio.

Thought #2. As an illustration of predictions and reality, in 2012 Peter Schiff said that runaway public spending combined with excessively loose monetary policy by the Federal Reserve and other global central banks will push gold to $5,000 per ounce within the next two years. Here is what has happened to the price of gold. As you can see, his prediction was incorrect.

Image
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Valuethinker
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Re: Upcoming Economic Bubble

Post by Valuethinker » Tue May 26, 2015 9:19 am

I really would not put 25% in gold a la the Permanent Portfolio.

I can guarantee 90% or more likely 99% of the young men who decide to follow that approach in their 20s will, by their 40s, have changed it. (I know about the impulsiveness of young male investors, having been one, than of women investors).

25% in an asset that often goes south when everything else goes north, is highly volatile, pays no dividend yield.

If one feels compelled to have an exposure to gold and/or gold mining stocks, then I would say 5%, 10% max of total portfolio. Gold is just a gambling culture: owning it, investing in it, running gold mining companies, stockbroking gold stocks (there is a pub in west central London where they all meet).

Gold just attracts the fevered dreams of libertarians who hate government in all its forms (their story about what is objectionable about government changes with each cycle), people expecting the apocalypse etc. And along for the ride the credulous and the fearful.

For a person in their 20s it is *always* the time to own a globally diversified portfolio of equities. Yes if you had invested in 1999-2000 you would not have done well (I did, and ditto) but you still received dividend yield, and if you were making phased, dollar cost averaging investments, you still come out with a positive return. There's no evidence we are in another Japan late 80s bubble, or even a dot com like bubble. Apple is not trading at 60x PE the way HP and Cisco and that were in 2000.

Does not mean markets could not fall 50%. They very easily could. But 90% is very unlikely. And if they do, then cheap stocks will be on sale.

How much bonds you want to own is a question of taste. There is however an old established rule of thumb that you should always be at least 25% and not more than 75% in stocks. That strikes me as not a bad rule of thumb to practice. IF markets fall, then you gain from rebalancing into them on the 'cheap' -- that's the fundamental principle of owning stocks and bonds in a combined portfolio.

That said, if you are saving for a house that should be in short term bond like fixed income investments (ie bank CDs or ST government bonds) and you could count that against your bond allocation.

Valuethinker
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Re: Upcoming Economic Bubble

Post by Valuethinker » Tue May 26, 2015 11:03 am

nisiprius wrote:
Thought #2. As an illustration of predictions and reality, in 2012 Peter Schiff said[/url] that runaway public spending combined with excessively loose monetary policy by the Federal Reserve and other global central banks will push gold to $5,000 per ounce within the next two years.
One problem is government spending wasn't "runaway" compared with previous recessions: not in the US, nor UK, nor Europe.

What he meant was deficits. And that was as much about the denominator (GDP) as the numerator.

His third problem is he posits mystical powers to the money supply, which that particular variable doesn't have.

Valuethinker
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Re: Upcoming Economic Bubble

Post by Valuethinker » Tue May 26, 2015 11:04 am

kenner wrote:
Morik wrote: - How much international exposure. Can either just go with global market capitalization, which almost no one seems to recommend, or go with less international exposure. People seem to recommend increasing exposure to your home currency to help mitigate currency risks, but I haven't looked into it enough to understand that argument. (I just do global market cap values, no extra weight towards my home currency; I figure my job & house are giving me enough extra exposure there.)
Rarely has so much wisdom been expressed in so few words.
OP is a Canadian. Generally, Canadians should weight by global market cap (on the equity side, at least). The Canadian stock market is a small percentage of world averages, and is heavily slanted towards banks and resource stocks. Very little tech, healthcare, etc.

Stan Dup
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Re: Upcoming Economic Bubble

Post by Stan Dup » Tue May 26, 2015 11:23 am

Read this: http://awealthofcommonsense.com/worlds- ... ket-timer/

You have been given some good advice on this thread so far. You can take action in a very simple way by investing in one of vanguard's Target Retirement funds: https://investor.vanguard.com/mutual-fu ... etirement/#/

Don't try to time the market, just keep investing every month whether it is up or down.
http://www.bogleheads.org/forum/viewtop ... 10&t=79324
"The tyranny of compounding expenses is the eighth deadly sin." - George Sisti

joebh
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Re: Upcoming Economic Bubble

Post by joebh » Tue May 26, 2015 11:26 am

Adrian P wrote:However, I heard from my uncle who is a financial advisor in Korea that the world economy is in a huge bubble and U.S, Europe, and Asia (especially Japan) countries are printing huge amount of money to prevent the market implosion which will eventually happen in a few years? (I'm sorry I know nothing about economy).

He agreed that low cost index funds are a very smart choice... but he recommended that in this period of time I should just buy gold until the currency plummets and recession comes... and then sell gold and buy stock index funds at a discounted price during the recession period.
Ask your uncle how much of his portfolio is in gold, and how long it has been this way.

Adrian P
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Re: Upcoming Economic Bubble

Post by Adrian P » Tue May 26, 2015 8:25 pm

Valuethinker wrote:
kenner wrote:
Morik wrote: - How much international exposure. Can either just go with global market capitalization, which almost no one seems to recommend, or go with less international exposure. People seem to recommend increasing exposure to your home currency to help mitigate currency risks, but I haven't looked into it enough to understand that argument. (I just do global market cap values, no extra weight towards my home currency; I figure my job & house are giving me enough extra exposure there.)
Rarely has so much wisdom been expressed in so few words.
OP is a Canadian. Generally, Canadians should weight by global market cap (on the equity side, at least). The Canadian stock market is a small percentage of world averages, and is heavily slanted towards banks and resource stocks. Very little tech, healthcare, etc.

Thank you so much for all the helpful and kind replies.

I took my time to read all of them carefully and also take a look at all the links you guys have attached.

I just realized that the very act of trying to buy gold in prediction of some kind of market recession and then moving onto index funds defeats the whole purpose of trying to index!

Again, I am a young male beginner investor, so I tend to be very impulsive.

VT you seem to be very knowledgeable in Canada market. Are you Canadian?

Do you think allocation of 25% Canadian stocks, 25% U.S.A stocks, 25% International stocks, and 25% Canada bonds is reasonable for my age?



Thanks you so much for all the helpful replies.

Morik
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Re: Upcoming Economic Bubble

Post by Morik » Wed May 27, 2015 6:50 am

It sounded to me like VT suggested market cap weighting. (I.e., if you look at what stocks are held, globally, match that. Don't over-weight towards Canadian stocks.)

As it so happens, there is an ETF with the ticker symbol 'VT' which is for the entire world's equity, weighted by market cap. (You could save on expense ratio if you wanted by breaking it down further.)


The simplest approach would be to get VT & then a bond fund for your bond portion. (I don't know whether you would get Canadian bond fund, or a total world bond fund, or a mix of Canadian & US bonds--I'm only familiar with advice for investing in the US, but I bet someone else can help you out with this part.)

If you want to save a bit of money, you can break VT down. It costs 0.17%, but you can get the US market for 0.05% (VTI/VTSAX) for half your holdings, and the rest of the world for 0.14%, for a total cost of 0.10% or so.

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Re: Upcoming Economic Bubble

Post by minesweep » Wed May 27, 2015 8:03 am

Adrian P wrote: However, I heard from my uncle who is a financial advisor in Korea that the world economy is in a huge bubble and U.S, Europe, and Asia (especially Japan) countries are printing huge amount of money to prevent the market implosion which will eventually happen in a few years? (I'm sorry I know nothing about economy).

He agreed that low cost index funds are a very smart choice... but he recommended that in this period of time I should just buy gold until the currency plummets and recession comes... and then sell gold and buy stock index funds at a discounted price during the recession period.
You have to be right twice.

Warren Buffet:
“A prediction about the direction of the stock market tells you nothing about where stocks are headed, but a whole lot about the person doing the predicting.”

“We have long felt that the only value of stock forecasters is to make fortune-tellers look good.”

“Stop trying to predict the direction of the stock market, the economy, interest rates, or elections.”

Mike

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packet
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Re: Upcoming Economic Bubble

Post by packet » Wed May 27, 2015 9:21 am

Adrian P wrote:...VT you seem to be very knowledgeable in Canada market. Are you Canadian?...
I can't vouch for the quality of this site, but I assume it's great simply because it's sister to Bogleheads.org ... :)

Canadien Bogleheads:
http://www.financialwisdomforum.org/

:beerCheers,
packet
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Re: Upcoming Economic Bubble

Post by nedsaid » Wed May 27, 2015 10:21 am

Adrian P wrote:Hello

I am 25 years old recent university graduate who just got a stable job last month (living in Canada).

I have no debts and currently have $9,500 in my bank savings account that I am planning to invest on canadian stock index funds, U.S stock index funds, and Canadian bond index funds.

I did my own research and reading and came up with the conclusion that index funds are the best investments over a long period of time.

However, I heard from my uncle who is a financial advisor in Korea that the world economy is in a huge bubble and U.S, Europe, and Asia (especially Japan) countries are printing huge amount of money to prevent the market implosion which will eventually happen in a few years? (I'm sorry I know nothing about economy).

He agreed that low cost index funds are a very smart choice... but he recommended that in this period of time I should just buy gold until the currency plummets and recession comes... and then sell gold and buy stock index funds at a discounted price during the recession period.

Obviously, I am just a 25 years old kid who knows nothing about economy and investing... so I get easily swayed around.

What do you guys think about this issue?

Sorry for the unorganized writing.
Adrian, I started my career in the fall of 1983. My first investment in the stock market was in a mutual fund which I purchased in July of 1984. I still own shares of the fund.

As a young man, there were all kinds of books out there about the imminent doom of the economy. Predictions of the next Great Depression, the collapse of the U.S. Dollar, the dangers of ballooning government debt, etc., etc. All you would have to do is maybe change the title of the books, do a little updating and editing, and then reprint the books. It is all the same and hasn't changed in 30 years. There is always a compelling case out there for why the world is going to hades in a hand basket.

Fortunately, I was encouraged by folks like Louis Rukeyser, who was host of Wall Street Week for many years. He was always bullish on the future, the economy, and the stock market. He once said that if you bought a good diversified portfolio of stocks and held it that in 10 years you would be far richer than you are today. I took his advice and not that of the doomsayers. I am very happy that I did.

By the way, that first mutual fund that I bought in July of 1984 has returned 11.27% a year since I owned it. This fund went through some tough periods of underperformance and disappointment and it still returned over 11%. Not bad.
A fool and his money are good for business.

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Re: Upcoming Economic Bubble

Post by goingup » Wed May 27, 2015 10:27 am

Adrian P wrote:Obviously, I am just a 25 years old kid who knows nothing about economy and investing... so I get easily swayed around.
Knowing about the ecomony doesn't help with investing. Saving is the most important first step. Deciding where to put that money comes next. Think long-term using low-cost index funds. Don't buy gold. :|

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Re: Upcoming Economic Bubble

Post by Valuethinker » Wed May 27, 2015 11:04 am

kenner wrote:
VT,

You are a treasure.
You are too kind. I have the unfair advantage of having been interested in investing for a long time and having made many stupid and egregious mistakes.

That's the basis of the 'wisdom' that I have, such as it is.

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Re: Upcoming Economic Bubble

Post by Valuethinker » Wed May 27, 2015 11:07 am

Morik wrote:It sounded to me like VT suggested market cap weighting. (I.e., if you look at what stocks are held, globally, match that. Don't over-weight towards Canadian stocks.)

As it so happens, there is an ETF with the ticker symbol 'VT' which is for the entire world's equity, weighted by market cap. (You could save on expense ratio if you wanted by breaking it down further.)


The simplest approach would be to get VT & then a bond fund for your bond portion. (I don't know whether you would get Canadian bond fund, or a total world bond fund, or a mix of Canadian & US bonds--I'm only familiar with advice for investing in the US, but I bet someone else can help you out with this part.)

If you want to save a bit of money, you can break VT down. It costs 0.17%, but you can get the US market for 0.05% (VTI/VTSAX) for half your holdings, and the rest of the world for 0.14%, for a total cost of 0.10% or so.
Morik

I think he has a tax withholding problem with US listed ETFs? And eventually he will qualify for US estates tax (and have to file even if his estate does not pay tax-- we got caught with this with my father and had to pay an accountant to file).

So is this ETF Canadian (TSX) listed? Canadian mutual funds tend to be spectacularly bad value, but he should limit himself to Canadian registered mutual funds and TSX listed ETFs.

Someone can correct me if I am wrong on this, as this tax issue no longer applies to me.

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Re: Upcoming Economic Bubble

Post by Valuethinker » Wed May 27, 2015 11:14 am

Adrian P wrote:
Valuethinker wrote:
kenner wrote:
Morik wrote: - How much international exposure. Can either just go with global market capitalization, which almost no one seems to recommend, or go with less international exposure. People seem to recommend increasing exposure to your home currency to help mitigate currency risks, but I haven't looked into it enough to understand that argument. (I just do global market cap values, no extra weight towards my home currency; I figure my job & house are giving me enough extra exposure there.)
Rarely has so much wisdom been expressed in so few words.
OP is a Canadian. Generally, Canadians should weight by global market cap (on the equity side, at least). The Canadian stock market is a small percentage of world averages, and is heavily slanted towards banks and resource stocks. Very little tech, healthcare, etc.

Thank you so much for all the helpful and kind replies.

I took my time to read all of them carefully and also take a look at all the links you guys have attached.

I just realized that the very act of trying to buy gold in prediction of some kind of market recession and then moving onto index funds defeats the whole purpose of trying to index!

Again, I am a young male beginner investor, so I tend to be very impulsive.

VT you seem to be very knowledgeable in Canada market. Are you Canadian?

Do you think allocation of 25% Canadian stocks, 25% U.S.A stocks, 25% International stocks, and 25% Canada bonds is reasonable for my age?
I no longer live in Canada so I am a bit blind to current Canadian tax law. Check everything I tell you.

Your asset allocation is distorted. I would say 75% in a global equity index fund market cap weighted. Which means US would be about 55% of that or c. 40%. Or 10% Canada and 65% global (Canada is about 5% global indices).

There's a question about Emerging Markets, which are (?) about 20% of the value of developed markets. That would say 60% global index ETF, 15% EM (seems a bit high to me -- have to check weightings). My own feel would be max 10% EM (there are a lot of resource industries in Canada, so there is overlap with EM stocks and economies).

25% Canadian bonds is fine BUT you need to consider your future needs for cash (ie to buy a property). Investing in a bond is equivalent to repaying a mortgage. So if you set aside 25% into CDs and short term bonds (and don't consume precious RRSP and TFSA room for money which within 5 years you will probably tap UNLESS you just don't have enough savings, then stick that money in TFSA) and that money eventually gets consumed as a down payment on a property, that's OK.

Only buy a home in Canada if you have a 5, and preferrably 10 year view. It's quite possible to buy a house in Toronto and 10 years later to sell it at a loss-- people did that in 1989. Hopefully we won't repeat, but The Economist does an authoritative study of overvaluation and undervaluation of houses, and Canada always comes at the top of the overvalued list, along with Australia. Depends on which Canadian city, however.

However on a 10+ year view, houses in the right cities in Canada have tended to do OK, and you get full capital gains tax exemption. Plus there is the forced savings element of repaying a mortgage (granted little repaid in first 10 years).So if you choose to rent, make sure you make equivalent savings into RRSP and/or TFSA.

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Re: Upcoming Economic Bubble

Post by Valuethinker » Wed May 27, 2015 11:16 am

Morik wrote:It sounded to me like VT suggested market cap weighting. (I.e., if you look at what stocks are held, globally, match that. Don't over-weight towards Canadian stocks.)
.
Yes. OP can control currency risk by holding Canadian dollar bonds but the Canadian market is only 5% of world equity markets (developed) and highly skewed towards banks and natural resource companies. Also to some extent OP's employment income will be correlated with how well Canadian GDP does. So maximum portfolio diversification is justified.

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Re: Upcoming Economic Bubble

Post by nedsaid » Wed May 27, 2015 11:26 am

Adrian P wrote:
Valuethinker wrote:
kenner wrote:
Morik wrote: - How much international exposure. Can either just go with global market capitalization, which almost no one seems to recommend, or go with less international exposure. People seem to recommend increasing exposure to your home currency to help mitigate currency risks, but I haven't looked into it enough to understand that argument. (I just do global market cap values, no extra weight towards my home currency; I figure my job & house are giving me enough extra exposure there.)
Rarely has so much wisdom been expressed in so few words.
OP is a Canadian. Generally, Canadians should weight by global market cap (on the equity side, at least). The Canadian stock market is a small percentage of world averages, and is heavily slanted towards banks and resource stocks. Very little tech, healthcare, etc.

Thank you so much for all the helpful and kind replies.

I took my time to read all of them carefully and also take a look at all the links you guys have attached.

I just realized that the very act of trying to buy gold in prediction of some kind of market recession and then moving onto index funds defeats the whole purpose of trying to index!

Nedsaid: Gold is like an insurance policy on your portfolio. The insurance may never pay off and it is a drag on the performance of your portfolio. What you are insuring against would be some kind of a currency crisis. Gold is also supposed to be an inflation hedge. Over very long periods of time, Gold has a zero real rate of return over inflation. It holds its purchasing power and that is about it. Stocks, bonds, and even cash have over time beaten inflation.

Again, I am a young male beginner investor, so I tend to be very impulsive.

Nedsaid: I have found impulse to be my enemy as an investor. What you want to do is buy good stuff and keep it. Trading reduces your performance mainly because of bad buy/sell decisions. The more times you trade, the greater your odds of making bad trading decisions. In my investing experience, I have found that most often that what I sell outperforms what I bought to replace it! It seems that bad trading decisions outnumber good trading decisions by a ratio of 2 to 1 or even 3 to 1. If you have a brokerage account, you also pay commissions every time you trade. On certain investments you will have the bid/ask spread as well.


VT you seem to be very knowledgeable in Canada market. Are you Canadian?

Nedsaid: It sounds like Valuethinker is from the U.K. I have never asked him.

Do you think allocation of 25% Canadian stocks, 25% U.S.A stocks, 25% International stocks, and 25% Canada bonds is reasonable for my age?

Nedsaid: This sounds very reasonable to me. Canada is only about 2-3% of world market cap but it would seem unpatriotic to invest so little in your own country. 25% in Canadian Stocks would be okay, keep in mind the Canadian stock market is dominated by four main sectors. The finance sector is dominated by four big banks. The Canadian Stock Market is not too well diversified. With 25% in Canadian Stocks and 25% in Canadian Bonds, you still have 50% of your money tied to the Canadian dollar and this will put a cap on the amount of currency risk you are taking.

Thanks you so much for all the helpful replies.
A fool and his money are good for business.

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Re: Upcoming Economic Bubble

Post by joelly » Wed May 27, 2015 2:23 pm

Most people who said something like your uncle usually have absolutely nothing saved for retirement.

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Re: Upcoming Economic Bubble

Post by anakinskywalker » Wed May 27, 2015 2:58 pm

Two Headed Mule wrote:In my experience, people making grandiose market forecasts based upon Fed and central bank "money printing" tend to have a very tenuous understanding of the actual economic forces at work around the globe.

Your uncle is probably a smart person. However, what you need to understand as a relative newcomer is that the trillions and trillions of US/European stocks/bonds are currently being held by someone. Those 'someones' tend to be very, very, very, very sophisticated people/institutions -- cumulatively, much more sophisticated than your uncle. By virtue of their willingness to hold these assets at current valuations, they implicitly disagree with your uncle's investment thesis. That should, at the least, give you some pause.

And how long has your uncle been singing this tune? Gold is down something like 40% from its highs of a couple of years ago (and stocks -- US at least, up significantly) in case you were under the impression that gold is somehow a stable store of value.

Mule
With all due respect this begs the question about what these "sophisticated" people were doing in 2008-2009? :-)

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Re: Upcoming Economic Bubble

Post by Two Headed Mule » Wed May 27, 2015 3:26 pm

anakinskywalker wrote:
Two Headed Mule wrote:In my experience, people making grandiose market forecasts based upon Fed and central bank "money printing" tend to have a very tenuous understanding of the actual economic forces at work around the globe.

Your uncle is probably a smart person. However, what you need to understand as a relative newcomer is that the trillions and trillions of US/European stocks/bonds are currently being held by someone. Those 'someones' tend to be very, very, very, very sophisticated people/institutions -- cumulatively, much more sophisticated than your uncle. By virtue of their willingness to hold these assets at current valuations, they implicitly disagree with your uncle's investment thesis. That should, at the least, give you some pause.

And how long has your uncle been singing this tune? Gold is down something like 40% from its highs of a couple of years ago (and stocks -- US at least, up significantly) in case you were under the impression that gold is somehow a stable store of value.

Mule
With all due respect this begs the question about what these "sophisticated" people were doing in 2008-2009? :-)

Anakin
Well, market participants at the time clearly placed a low probability on a once-very-three generations global financial meltdown. That the extreme left tail actually showed up doesn't mean that its risk was mispriced. Why was Buster Douglas only a 100/1 shot to beat Mike Tyson? After all, he won.

Mule

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Re: Upcoming Economic Bubble

Post by Valuethinker » Fri May 29, 2015 12:21 pm

anakinskywalker wrote:
Two Headed Mule wrote:In my experience, people making grandiose market forecasts based upon Fed and central bank "money printing" tend to have a very tenuous understanding of the actual economic forces at work around the globe.

Your uncle is probably a smart person. However, what you need to understand as a relative newcomer is that the trillions and trillions of US/European stocks/bonds are currently being held by someone. Those 'someones' tend to be very, very, very, very sophisticated people/institutions -- cumulatively, much more sophisticated than your uncle. By virtue of their willingness to hold these assets at current valuations, they implicitly disagree with your uncle's investment thesis. That should, at the least, give you some pause.

And how long has your uncle been singing this tune? Gold is down something like 40% from its highs of a couple of years ago (and stocks -- US at least, up significantly) in case you were under the impression that gold is somehow a stable store of value.

Mule
With all due respect this begs the question about what these "sophisticated" people were doing in 2008-2009? :-)

Anakin
Remember. Safe government bonds did well in 2008-09.

So the prudent diversified investor took a pounding on the once-in-a-generation (we hope) financial crash. Equities are *risky* and that's why they pay the long term returns that they do. However they also held safe government bonds, so they were not obliterated. US TIPS did badly for a bit, and provided the buying opportunity of the decade in retrospect-- the falls were likely for technical reasons (unwinding of market positions leading to sharp price falls).

The conventional advice to hold the majority of your portfolio in equities and bonds still seems justified in the absence of easy ways of accessing other types of assets like real estate, private equity etc. And in those latter cases, the actual diversification benefit (even ignoring the very high fees) seems to be low.

Gold? 5% maybe 10%. 0% would be my preference.

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Re: Upcoming Economic Bubble

Post by tc101 » Fri May 29, 2015 12:51 pm

I agree with all the posts here that you will almost certainly do better in the long run if you just start putting money into a stock index fund. However, if you have any doubt, let me suggest a useful exercise. With the money you have to invest, go ahead and put 20% into gold. You will probably lose money by doing that, but it will be a useful lesson. The small amount of money you lose will make an impression, and you will be more convinced of the fact that you can't time the market. You will remember this lesson and it will pay off over the course of your life.
. | The most important thing you should know about me is that I am not an expert.

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Re: Upcoming Economic Bubble

Post by anakinskywalker » Sat May 30, 2015 7:54 am

Valuethinker wrote:
anakinskywalker wrote:
Two Headed Mule wrote:In my experience, people making grandiose market forecasts based upon Fed and central bank "money printing" tend to have a very tenuous understanding of the actual economic forces at work around the globe.

Your uncle is probably a smart person. However, what you need to understand as a relative newcomer is that the trillions and trillions of US/European stocks/bonds are currently being held by someone. Those 'someones' tend to be very, very, very, very sophisticated people/institutions -- cumulatively, much more sophisticated than your uncle. By virtue of their willingness to hold these assets at current valuations, they implicitly disagree with your uncle's investment thesis. That should, at the least, give you some pause.

And how long has your uncle been singing this tune? Gold is down something like 40% from its highs of a couple of years ago (and stocks -- US at least, up significantly) in case you were under the impression that gold is somehow a stable store of value.

Mule
With all due respect this begs the question about what these "sophisticated" people were doing in 2008-2009? :-)

Anakin
Remember. Safe government bonds did well in 2008-09.

So the prudent diversified investor took a pounding on the once-in-a-generation (we hope) financial crash. Equities are *risky* and that's why they pay the long term returns that they do. However they also held safe government bonds, so they were not obliterated. US TIPS did badly for a bit, and provided the buying opportunity of the decade in retrospect-- the falls were likely for technical reasons (unwinding of market positions leading to sharp price falls).

The conventional advice to hold the majority of your portfolio in equities and bonds still seems justified in the absence of easy ways of accessing other types of assets like real estate, private equity etc. And in those latter cases, the actual diversification benefit (even ignoring the very high fees) seems to be low.

Gold? 5% maybe 10%. 0% would be my preference.
Good points... I however feel 2008-2009 could not have been "once in a generation" given that equities behaved similarly in 2000-2002 as well...

Anakin

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Re: Upcoming Economic Bubble

Post by anakinskywalker » Sat May 30, 2015 8:02 am

anakinskywalker wrote:
Valuethinker wrote:
anakinskywalker wrote:
Two Headed Mule wrote:In my experience, people making grandiose market forecasts based upon Fed and central bank "money printing" tend to have a very tenuous understanding of the actual economic forces at work around the globe.

Your uncle is probably a smart person. However, what you need to understand as a relative newcomer is that the trillions and trillions of US/European stocks/bonds are currently being held by someone. Those 'someones' tend to be very, very, very, very sophisticated people/institutions -- cumulatively, much more sophisticated than your uncle. By virtue of their willingness to hold these assets at current valuations, they implicitly disagree with your uncle's investment thesis. That should, at the least, give you some pause.

And how long has your uncle been singing this tune? Gold is down something like 40% from its highs of a couple of years ago (and stocks -- US at least, up significantly) in case you were under the impression that gold is somehow a stable store of value.

Mule
With all due respect this begs the question about what these "sophisticated" people were doing in 2008-2009? :-)

Anakin
Remember. Safe government bonds did well in 2008-09.

So the prudent diversified investor took a pounding on the once-in-a-generation (we hope) financial crash. Equities are *risky* and that's why they pay the long term returns that they do. However they also held safe government bonds, so they were not obliterated. US TIPS did badly for a bit, and provided the buying opportunity of the decade in retrospect-- the falls were likely for technical reasons (unwinding of market positions leading to sharp price falls).

The conventional advice to hold the majority of your portfolio in equities and bonds still seems justified in the absence of easy ways of accessing other types of assets like real estate, private equity etc. And in those latter cases, the actual diversification benefit (even ignoring the very high fees) seems to be low.

Gold? 5% maybe 10%. 0% would be my preference.
Good points... I however feel 2008-2009 could not have been "once in a generation" given that equities behaved similarly in 2000-2002 as well...

Anakin
What I was implying in my earlier comment though is that "sophisticated" investors acting rationally as individuals can and do frequently cause the market as a whole to act irrationally. I do believe in market efficiency but not in rationality. Of course I also believe the market can stay irrational longer than any individual can stay solvent. So I do not take positions based on my belief about the market's irrationality. This answers the natural question many ask "if you think the market is mispricing xyz why don't you short it?" However I can choose to stay out of the way when I think it is irrational.

I think it would be a grave mistake to assume that "sophisticated" individuals acting in herds can cause the overall outcome to also reflect "sophistication". This is because it is the rational course for any one individual to go with the herd: buy high and hold high because others are buying higher. This kind of behavior is what causes bubbles and crashes.

Anakin

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Re: Upcoming Economic Bubble

Post by JimInIllinois » Sat May 30, 2015 11:01 pm

Congratulations on getting a stable job. Your $9500 is a good emergency fund, so either keep it in a bank or at most invest half of it in a bond fund. Set up 10% of each paycheck (at least - more would be better) to automatically buy into whatever 100% stock index fund portfolio you like. Then get on your knees and pray that your uncle is right - you're going to be net buyer of stocks for the next 30 years and low prices are your friend. Finally, don't think about your investments more than one day a year - focus on your career and the joys of being young.

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Re: Upcoming Economic Bubble

Post by z3r0c00l » Sun May 31, 2015 7:42 am

I have "The Crash of 2016" by Tom Hartman in my large pile of books to read. Unclear if it is better to read now, in 2015, or wait for the predictions to not come true so that it is a more relaxing read in 2017. What is clear is that I would never trust the predictions of any individual both because of the poor record prognosticators have had in the past (almost certainly comparable to random chance, maybe worse because they skew towards the really bad or really good as those are the predictions that earn them more money) and because anyone with the knowledge they claim to have would probably be doing other things like rushing to buy gold, or even selling the market short.

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Re: Upcoming Economic Bubble

Post by Valuethinker » Sun May 31, 2015 8:59 am

anakinskywalker wrote:
Good points... I however feel 2008-2009 could not have been "once in a generation" given that equities behaved similarly in 2000-2002 as well...

Anakin
Very different.

In 2001-3 (market bottomed in March 2003) we saw a group of stocks the Tech Media Telecoms (TMT) get heavily overvalued (HP and Cisco on Price to Earnings of 50x) and then collapse. Successive bankruptcies of Enron, Worldcom, Nortel. Other 'value' parts of the market (such as REITs) did fine-- there was a huge dispersion in performance between value and growth managers, people like Janus (growth) got absolutely creamed. Mining stocks began a bull market.

Although there were some banking issues (lots of debt borrowed by Telcos got into distress) the overall impact on the financial system was not huge. Interest rates were lowered, dramatically, and the global recession was mild (China barely even noticed).

2008-09 was a collapse in confidence in the entire financial system, and everything went down. And down a lot. Major companies stopped issuing earnings guidance because their revenues were in freefall. The whole Shadow Banking System froze, and big blue chip companies just couldn't get any liquidity-- couldn't pay their bills.

A record number of global financial institutions (Goldman, BancAmerica, Morgan Stanley, RBS, Citigroup, Lloyds etc.) had to receive government bailout money or were actually nationalized. Several countries tumbled into bankruptcy.

2008-09 was a very different experienc for investors than 2000-03. No one in the earlier period believed the system might just cease to exist, whereas in 2008-09 I knew some very serious people who were taking all their money and either depositing it with HSBC (too big to fail, literally) or putting it in different bank and building society accounts, £30k per institution (then the government guarantee limit).

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Re: Upcoming Economic Bubble

Post by Valuethinker » Sun May 31, 2015 9:02 am

anakinskywalker wrote:
What I was implying in my earlier comment though is that "sophisticated" investors acting rationally as individuals can and do frequently cause the market as a whole to act irrationally. I do believe in market efficiency but not in rationality. Of course I also believe the market can stay irrational longer than any individual can stay solvent. So I do not take positions based on my belief about the market's irrationality. This answers the natural question many ask "if you think the market is mispricing xyz why don't you short it?" However I can choose to stay out of the way when I think it is irrational.

I think it would be a grave mistake to assume that "sophisticated" individuals acting in herds can cause the overall outcome to also reflect "sophistication". This is because it is the rational course for any one individual to go with the herd: buy high and hold high because others are buying higher. This kind of behavior is what causes bubbles and crashes.

Anakin
This is more or less Andrei Schliefer's argument in his famous paper. Given limits to arbitrage, if there are 'noisy traders' in a market, the smart thing for the investor to do might well be to ride the bubble up, rather than try to deflate it.

The agonies endured by Michael Lewis' 3 hedge fund managers trying to short the US housing market in 2006-08 are a case in point. Michael Bury's investors sued him, and he wound up simply ignoring their demands for redemptions.

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Re: Upcoming Economic Bubble

Post by stemikger » Sun May 31, 2015 9:10 am

At your age, you would benefit greatly from a recession where stocks drop dramatically. No one knows what the future holds, especially people who forecast the economy. He may be right and that would actually be a good thing for a 25 year old. This is why John Bogle promotes age-in-bonds. When you are young, you have more in stocks and when you are older, you have more in bonds and hopefully the big drops don't affect the older folks but enables the younger folks to buy more stocks on sale.

Economies always go up and down, that is what they are supposed to do. As Taylor Larimore has often said, stocks are to eat and bonds are to sleep.

Having said all that, market timing is a sure way to lose money. You have to be right when to get out and you have to be right when to get in. Pick an asset allocation (be it age in bonds or something that enables you to sleep well at night) and just keep adding as much to it as you can possibly handle. You will be very happy you did, and you will do it with a lot less stress than a market timer.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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Re: Upcoming Economic Bubble

Post by anakinskywalker » Sun May 31, 2015 11:24 pm

Valuethinker wrote:
anakinskywalker wrote:
Good points... I however feel 2008-2009 could not have been "once in a generation" given that equities behaved similarly in 2000-2002 as well...

Anakin
Very different.

In 2001-3 (market bottomed in March 2003) we saw a group of stocks the Tech Media Telecoms (TMT) get heavily overvalued (HP and Cisco on Price to Earnings of 50x) and then collapse. Successive bankruptcies of Enron, Worldcom, Nortel. Other 'value' parts of the market (such as REITs) did fine-- there was a huge dispersion in performance between value and growth managers, people like Janus (growth) got absolutely creamed. Mining stocks began a bull market.

Although there were some banking issues (lots of debt borrowed by Telcos got into distress) the overall impact on the financial system was not huge. Interest rates were lowered, dramatically, and the global recession was mild (China barely even noticed).

2008-09 was a collapse in confidence in the entire financial system, and everything went down. And down a lot. Major companies stopped issuing earnings guidance because their revenues were in freefall. The whole Shadow Banking System froze, and big blue chip companies just couldn't get any liquidity-- couldn't pay their bills.

A record number of global financial institutions (Goldman, BancAmerica, Morgan Stanley, RBS, Citigroup, Lloyds etc.) had to receive government bailout money or were actually nationalized. Several countries tumbled into bankruptcy.

2008-09 was a very different experienc for investors than 2000-03. No one in the earlier period believed the system might just cease to exist, whereas in 2008-09 I knew some very serious people who were taking all their money and either depositing it with HSBC (too big to fail, literally) or putting it in different bank and building society accounts, £30k per institution (then the government guarantee limit).
I see what you mean, and agree... I was referring to the similarity in just the overall equity market index performance however... in both cases it fell about 50% to 60%...

Anakin

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Re: Upcoming Economic Bubble

Post by Valuethinker » Mon Jun 01, 2015 4:00 am

anakinskywalker wrote:
I see what you mean, and agree... I was referring to the similarity in just the overall equity market index performance however... in both cases it fell about 50% to 60%...

Anakin

We are on a page. If one was just looking at stock market performance, then yes, they felt similar. The old saw around here ("Adrian's law") is that your stocks can drop 50% in value at any time.

(a coda which is alas concluded from the recent past, is that recoveries are always swift. Not so. In the 1930s there was a recovery, then another bust, it took nearly 15 years to get your money back from the US market after 1929. And there is Japan (2.5 decade long bear market), and the UK in the 1970s, and the US market 1966-1980 which went basically nowhere against a backdrop of rising inflation).

It is true that, usually, bear markets tend to be short, and brutal, and bull markets long and languid. That pattern has certainly been repeated since 2007. There's just an implicit warning there that 'stocks always recover' needs to be modified to 'stocks always recover, given enough decades'.

In retrospect, 2000 was the "what were we thinking?" bear market. Stocks got to the highest PE on average ever recorded. It was an out and out bubble of the kind we associate with more speculative economies and sectors: oil and gas, gold, emerging markets etc.

2008 was the OMG bear market. The emperor turned out to have no clothes, and the systemic side effects of the products and events that led to Lehman Brothers bankruptcy spread out almost instantaneously throughout the world financial system. Really we had not seen its like since 1929-1931.

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Re: Upcoming Economic Bubble

Post by anakinskywalker » Mon Jun 01, 2015 9:57 pm

Valuethinker wrote:
anakinskywalker wrote:
I see what you mean, and agree... I was referring to the similarity in just the overall equity market index performance however... in both cases it fell about 50% to 60%...

Anakin

We are on a page. If one was just looking at stock market performance, then yes, they felt similar. The old saw around here ("Adrian's law") is that your stocks can drop 50% in value at any time.

(a coda which is alas concluded from the recent past, is that recoveries are always swift. Not so. In the 1930s there was a recovery, then another bust, it took nearly 15 years to get your money back from the US market after 1929. And there is Japan (2.5 decade long bear market), and the UK in the 1970s, and the US market 1966-1980 which went basically nowhere against a backdrop of rising inflation).

It is true that, usually, bear markets tend to be short, and brutal, and bull markets long and languid. That pattern has certainly been repeated since 2007. There's just an implicit warning there that 'stocks always recover' needs to be modified to 'stocks always recover, given enough decades'.

In retrospect, 2000 was the "what were we thinking?" bear market. Stocks got to the highest PE on average ever recorded. It was an out and out bubble of the kind we associate with more speculative economies and sectors: oil and gas, gold, emerging markets etc.

2008 was the OMG bear market. The emperor turned out to have no clothes, and the systemic side effects of the products and events that led to Lehman Brothers bankruptcy spread out almost instantaneously throughout the world financial system. Really we had not seen its like since 1929-1931.
Thanks for the insightful thoughts Valuethinker :-)

Anakin

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Re: Upcoming Economic Bubble

Post by easye418 » Tue Jun 02, 2015 12:33 pm

Get your own liquid gold!




Jokes aside....awful investment

toto238
Posts: 1879
Joined: Wed Feb 05, 2014 2:39 am

Re: Upcoming Economic Bubble

Post by toto238 » Tue Jun 02, 2015 1:17 pm

There's always a bubble somewhere. There's always a crisis ahead. At some point in time there's going to be another stock market crash. It's inevitable.

But if someone claims they know when its going to happen and can help you successfully time it, either they're a fool or they're trying to sell you something.

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