The Stock Market's Relentless Bid, Explained

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noyopacific
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The Stock Market's Relentless Bid, Explained

Post by noyopacific » Wed Mar 05, 2014 2:37 pm

I don't know it the authors data is accurate and am not sure this entirely explains the factors behind the extended bull market in equities but I thought it was an interesting perspective.
http://finance.yahoo.com/blogs/the-exch ... 36177.html
The information contained herein, while not guaranteed by us, has been obtained from from sources which have not in the past proved particularly reliable.

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Re: The Stock Market's Relentless Bid, Explained

Post by technovelist » Wed Mar 05, 2014 2:42 pm

There was one comment on that article, which I agree with.
In theory, theory and practice are identical. In practice, they often differ.

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Re: The Stock Market's Relentless Bid, Explained

Post by terrabiped » Wed Mar 05, 2014 2:56 pm

Made sense to me.

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Re: The Stock Market's Relentless Bid, Explained

Post by steve_14 » Wed Mar 05, 2014 3:16 pm

Thanks for the link.
No, the vast majority of this snowballing asset base being reported by both wirehouse firms and RIAs is being put to work in a calm and methodical fashion: long-term mutual funds, tax-sensitive separately managed accounts (SMAs) and, of course, index ETFs.
So I can buy and hold a few funds myself, or pay an annual fee for some guy to sit on them for me year after year. Not the hardest choice in the world.

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Re: The Stock Market's Relentless Bid, Explained

Post by Random Musings » Wed Mar 05, 2014 3:24 pm

Earnings growth and animal spirits that results in PE expansion?

RM
I figure the odds be fifty-fifty I just might have something to say. FZ

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Re: The Stock Market's Relentless Bid, Explained

Post by lws6772 » Wed Mar 05, 2014 3:30 pm

"It is the reason why both bad news and good news seems to get bought, almost as if the two things were entirely interchangeable." - For the last couple of years this phenomenon has baffled me. His explanation seems reasonable. Although I become more cautious (about anything) the longer is stays in a "relentless bid" mode.

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Re: The Stock Market's Relentless Bid, Explained

Post by technovelist » Wed Mar 05, 2014 3:38 pm

Random Musings wrote:Earnings growth and animal spirits that results in PE expansion?

RM
Wild money printing.
In theory, theory and practice are identical. In practice, they often differ.

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Re: The Stock Market's Relentless Bid, Explained

Post by abuss368 » Wed Mar 05, 2014 5:04 pm

Thank you for sharing.
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Re: The Stock Market's Relentless Bid, Explained

Post by ERMD » Wed Mar 05, 2014 6:42 pm

this ties into something i mentioned in another thread.. if everyone woke up tomorrow a boglehead, and implemented a buy-and-hold index fund strategy, i feel like something terrible would happen, economically speaking. i have no evidence to support that though.
between scotch and nothing, i'll take scotch. -- faulkner

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Re: The Stock Market's Relentless Bid, Explained

Post by Ged » Wed Mar 05, 2014 7:37 pm

Random Musings wrote:Earnings growth and animal spirits that results in PE expansion?

RM
Well, earnings growth implies the market isn't going up through PE expansion.

I think it's mostly because interest rates are so low plus there is still a lot of unused capacity in the economy making continued growth likely.

The article? I think it's ridiculous. The author is a contributor on one of the worst financial porn shows of them all, CNBC's Fast Money.

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Re: The Stock Market's Relentless Bid, Explained

Post by Ryan_in_Chi » Wed Mar 05, 2014 7:48 pm

I can see this explaining in the buying, but not the selling. Who is selling in his example?

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Re: The Stock Market's Relentless Bid, Explained

Post by Phineas J. Whoopee » Thu Mar 06, 2014 2:55 pm

ERMD wrote:this ties into something i mentioned in another thread.. if everyone woke up tomorrow a boglehead, and implemented a buy-and-hold index fund strategy, i feel like something terrible would happen, economically speaking. i have no evidence to support that though.
And the answer is the same as always. If everyone woke up tomorrow implementing a buy-and-hold index fund strategy the more enterprising among them would change their minds prior to market open (not that there is one any more in our globally connected world) and immediately begin to extract free money from the wildly inefficient prices that would result.

It's self correcting.

PJW

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Re: The Stock Market's Relentless Bid, Explained

Post by Phineas J. Whoopee » Thu Mar 06, 2014 3:06 pm

lws6772 wrote:"It is the reason why both bad news and good news seems to get bought, almost as if the two things were entirely interchangeable." - For the last couple of years this phenomenon has baffled me. His explanation seems reasonable. Although I become more cautious (about anything) the longer is stays in a "relentless bid" mode.
News is backward looking. It can be used to refine forward-looking projections, but fundamentally it's about the past. It speaks of what the price should have been yesterday, not what it should be today nor will be tomorrow.

Anyhow, as every active equity trader should know (that doesn't necessarily include we Bogleheads, most of whom are liquidity driven, not information driven), it isn't a matter of what we think will happen going forward, but of what everybody else thinks will happen. That is to say, it's a matter of what we think everybody else thinks. Everybody else knows that too. So really, it's what we think everybody else thinks everybody else thinks.

PJW

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Re: The Stock Market's Relentless Bid, Explained

Post by Phineas J. Whoopee » Thu Mar 06, 2014 3:17 pm

noyopacific wrote:I don't know it the authors data is accurate and am not sure this entirely explains the factors behind the extended bull market in equities but I thought it was an interesting perspective.
http://finance.yahoo.com/blogs/the-exch ... 36177.html
On 9 March 2009, five years ago this Sunday, stocks were priced for imminent economic collapse, not just in financial assets but in the overall productivity of society. The prospect of widespread starvation was priced in.

Since then, although nobody can say the global economy is doing great, the likelihood of most of us dying soon of hunger, disease, or gun - knife - stone - stick battles over dwindling caloric resources has receded.

We were, then, dangling one foot over the edge of a very tall cliff. We're not now.

PJW

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Re: The Stock Market's Relentless Bid, Explained

Post by ERMD » Thu Mar 06, 2014 5:56 pm

Phineas J. Whoopee wrote:
ERMD wrote:this ties into something i mentioned in another thread.. if everyone woke up tomorrow a boglehead, and implemented a buy-and-hold index fund strategy, i feel like something terrible would happen, economically speaking. i have no evidence to support that though.
And the answer is the same as always. If everyone woke up tomorrow implementing a buy-and-hold index fund strategy the more enterprising among them would change their minds prior to market open (not that there is one any more in our globally connected world) and immediately begin to extract free money from the wildly inefficient prices that would result.

It's self correcting.

PJW
that's interesting, although i should point out that when someone asks a theoretical question like, "what if everyone did x?", your answer can't begin with "well, the people who DON'T do x.." because at that point, you're answering a different question.
between scotch and nothing, i'll take scotch. -- faulkner

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Re: The Stock Market's Relentless Bid, Explained

Post by ogd » Thu Mar 06, 2014 6:50 pm

ERMD wrote:that's interesting, although i should point out that when someone asks a theoretical question like, "what if everyone did x?", your answer can't begin with "well, the people who DON'T do x.." because at that point, you're answering a different question.
PJW did actually start with the premise of a moment in time where everyone is doing X, but it soon becomes obvious to some of them that they should be doing something else.

It's as if you asked, "what if everyone charged $50 for a burger, all other prices equal?" -- someone would figure out very quickly that they can lower their price to $40 and make a mint. The $50 price point is an unstable situation that can't persist.

This is my view of things as well.

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Re: The Stock Market's Relentless Bid, Explained

Post by Phineas J. Whoopee » Thu Mar 06, 2014 6:59 pm

ERMD wrote:
Phineas J. Whoopee wrote:
ERMD wrote:this ties into something i mentioned in another thread.. if everyone woke up tomorrow a boglehead, and implemented a buy-and-hold index fund strategy, i feel like something terrible would happen, economically speaking. i have no evidence to support that though.
And the answer is the same as always. If everyone woke up tomorrow implementing a buy-and-hold index fund strategy the more enterprising among them would change their minds prior to market open (not that there is one any more in our globally connected world) and immediately begin to extract free money from the wildly inefficient prices that would result.

It's self correcting.

PJW
that's interesting, although i should point out that when someone asks a theoretical question like, "what if everyone did x?", your answer can't begin with "well, the people who DON'T do x.." because at that point, you're answering a different question.
Kindly refrain from mischaracterizing my response.

I did not say "well, the people who DON'T [shouting original] do x.." I said some of them would change their minds and stop doing x before they had a chance to implement x when the markets opened.

Anyhow, it's such a common question here these days, and always answered in the same way, you could at least have done a search before asking.

I stand by my answer. Even if everybody did that, one morning, upon arising, and ignoring the global nature of capital markets, enough would change their minds so quickly it would have no practical impact.

But what if everybody was a complete idiot, ignored their own self interest, and did it anyway so Emergency Room Medical Doctor's question could be answered? OK, I'll play. After several decades personal finance authors would conclude stock market returns are all but random from day to day, week to week, and even year to year.

Just like they conclude today.

PJW
Last edited by Phineas J. Whoopee on Thu Mar 06, 2014 7:18 pm, edited 2 times in total.

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Re: The Stock Market's Relentless Bid, Explained

Post by peppers » Thu Mar 06, 2014 7:10 pm

I eagerly await the PE10>30 thread. :happy
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Re: The Stock Market's Relentless Bid, Explained

Post by ERMD » Fri Mar 07, 2014 6:53 am

Phineas J. Whoopee wrote: But what if everybody was a complete idiot, ignored their own self interest, and did it anyway so Emergency Room Medical Doctor's question could be answered? OK, I'll play. After several decades personal finance authors would conclude stock market returns are all but random from day to day, week to week, and even year to year.
[OT comments removed by admin LadyGeek]
between scotch and nothing, i'll take scotch. -- faulkner

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Re: The Stock Market's Relentless Bid, Explained

Post by Phineas J. Whoopee » Fri Mar 07, 2014 10:09 pm

[Response to OT comments removed by admin LadyGeek]
PJW

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Re: The Stock Market's Relentless Bid, Explained

Post by docneil88 » Sat Mar 08, 2014 10:31 pm

Phineas J. Whoopee wrote:
ERMD wrote:this ties into something i mentioned in another thread.. if everyone woke up tomorrow a boglehead, and implemented a buy-and-hold index fund strategy, i feel like something terrible would happen, economically speaking. i have no evidence to support that though.
And the answer is the same as always. If everyone woke up tomorrow implementing a buy-and-hold index fund strategy the more enterprising among them would change their minds prior to market open (not that there is one any more in our globally connected world) and immediately begin to extract free money from the wildly inefficient prices that would result. It's self correcting.
No matter what percentage of investors are indexing, the active investors will still face the uphill battle of overcoming trading, tax, and management costs that are significantly higher than the index investors face. In the long-run those increased costs are generally very difficult to overcome.

On the other hand, as the percentage of active investors decreases, the efficiency of the market will decrease, thereby increasing the performance gap between first- and fourth-quartile performing active managers. This gives anyone with true investing skill the opportunity to make more money, while giving those lacking in skill (but full of courage or hubris) the opportunity to flame out in a more spectacular way. Best, Neil

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Re: The Stock Market's Relentless Bid, Explained

Post by docneil88 » Sat Mar 08, 2014 10:35 pm

Yes, a greater proportion of money is going into index funds and managed accounts with assets under management (AUM) fees. But one cannot conclude from that that there will be a relentless bid under the market causing it to go up or to catch itself before a downturn gets too nasty. Index investors (whether individuals or investment managers) can still get spooked by headlines and market downturns. When that happens they may move money from stock index funds to bond index funds or cash equivalents. Also, individuals with managed accounts may pull their money out of managed accounts to get into cash equivalents or bonds. Still, I am inclined to agree that those tendencies to get spooked happen less often and to a lesser extent with index fund investors. Best, Neil

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Re: The Stock Market's Relentless Bid, Explained

Post by NightOwl » Sun Mar 09, 2014 12:16 am

ERMD wrote:it's called a theoretical question, or a thought experiment, if you will.(Snip) i haven't seen it asked anywhere on this forum.
Hi ERMD,

I'd recommend searching for "what if everyone indexed?", specifying site:bogleheads.org. It is a good question, in that it signals an interest in the theory behind indexing, but alas it is a relatively common one. I have posted my typical answer in several of those threads. In short, my typical answer finds the hypothetical highly unlikely: "You guys are hanging out in classier company than I am. I am not only the only person I know who indexes, I am one of a few people I know who own mutual funds rather than single stocks. My peers all think that I am crazy to index - smart people should be able to beat the S&P, right? Judging completely anecdotally, I'd say that we are in no danger of everyone indexing any time soon!"

As far as the market's "relentless bid" since 2008 goes, I read the linked article with interest. That said, I think that lots of people bought into a variety of theories that turned out not to be true, and have been waiting around for a crash or other ill effects that simply didn't happen. They may well be puzzled by the market's success in the years since.

NightOwl
"Volatility provokes the constant dread that some investors know more than we do, making us fearful of ignoring such powerful price movements." | Peter Bernstein, "The 60/40 Solution."

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