The Sky is Falling

[Shabber]

Not that it matters as everyone here is diversified and buy/hold investors, but.....

I told myself that next time we were in a crazy stock bubble, I would realize it. Now I look at the crazy IPO's going on with companies that have no earnings or chance of earnings for a long time raising millions. I see my house price back up higher than it was in 2007. SP500 PE ratio at 20 vs 15 avg. Amazon at 298 a share and no profit. Groupon $5B mkt cap LOL. Dow at 17500, 75% up in 5 years. Just want to say, this time I saw it coming and wasn't wrapped up into believing that this was normal.

[nelson1015]

Not that it matters as everyone here is diversified and buy/hold investors, but.....

I told myself that next time we were in a crazy stock bubble, I would realize it. Now I look at the crazy IPO's going on with companies that have no earnings or chance of earnings for a long time raising millions. I see my house price back up higher than it was in 2007. SP500 PE ratio at 20 vs 15 avg. Amazon at 298 a share and no profit. Groupon $5B mkt cap LOL. Dow at 17500, 75% up in 5 years. Just want to say, this time I saw it coming and wasn't wrapped up into believing that this was normal.

None of this is going to change any of my plans. My biggest "fear" is that the US endures a long term deflationary period akin to Japan. However, that information still doesn't change any of my plans.

-Live below your means
-Save as much as you can
-Diversify your portfolio and risks
-Pay off debt

Paying off debt is the big one (to me). A lot of people look at their fat salaries and the low interest rates on their debt and see no issues. If we ever enter a long term deflationary period where jobs become scarce even cheap debt will become a big problem.

[Bungo]

Not that it matters as everyone here is diversified and buy/hold investors, but.....

I told myself that next time we were in a crazy stock bubble, I would realize it. Now I look at the crazy IPO's going on with companies that have no earnings or chance of earnings for a long time raising millions. I see my house price back up higher than it was in 2007. SP500 PE ratio at 20 vs 15 avg. Amazon at 298 a share and no profit. Groupon $5B mkt cap LOL. Dow at 17500, 75% up in 5 years. Just want to say, this time I saw it coming and wasn't wrapped up into believing that this was normal.

Sounds like a good argument in favor of international diversification. Even if the US is in a bubble (I don't know if it is), it doesn't seem like the whole world is in one.

[livesoft]

But tell me you bought GDX the other day.

[nelson1015]

But tell me you bought GDX the other day.

Great 5 year return on that one.

[jpsfranks]

I told myself that next time we were in a crazy stock bubble, I would realize it. Now I look at the crazy IPO's going on with companies that have no earnings or chance of earnings for a long time raising millions. I see my house price back up higher than it was in 2007. SP500 PE ratio at 20 vs 15 avg. Amazon at 298 a share and no profit. Groupon $5B mkt cap LOL. Dow at 17500, 75% up in 5 years. Just want to say, this time I saw it coming and wasn't wrapped up into believing that this was normal.

Well, less than a year ago Amazon was at 400, and in 2011 Groupon turned down a $6bn offer from Google and instead went public valued it at $12bn. So at least in these two examples things aren't quite as sky high as they had been.

[Buddtholomew]

But tell me you bought GDX the other day.

Great 5 year return on that one.

I did...still down substantially though. Re-balancing into a falling asset is never fun, but my IPS remains intact.

[Wannaretireearly]

But tell me you bought GDX the other day.

Is this a good time (cheaper) to buy jewelry? Diamond rings? I'm serious!
Been meaning to ask this with all the other commodities threads recently....

[pkcrafter]

Just want to say, this time I saw it coming and wasn't wrapped up into believing that this was normal.

Normal? What is normal? Is there a normal? I think there are only chopped up pieces of abnormal.


Paul

[richard]

Not that it matters as everyone here is diversified and buy/hold investors, but.....

I told myself that next time we were in a crazy stock bubble, I would realize it. Now I look at the crazy IPO's going on with companies that have no earnings or chance of earnings for a long time raising millions. I see my house price back up higher than it was in 2007. SP500 PE ratio at 20 vs 15 avg. Amazon at 298 a share and no profit. Groupon $5B mkt cap LOL. Dow at 17500, 75% up in 5 years. Just want to say, this time I saw it coming and wasn't wrapped up into believing that this was normal.

They changed the accounting rules regarding amortization of goodwill lin 2001. p/e ratios before and after that change are not directly comparable. Using the same accounting rules for pre-2001 earning would make the long-term average a few points higher.

There are always some outliers that can be used as examples of crazy pricing. That's why we should look at overall averages if we want to rely on valuations.

We're likely in a period of low returns, given current p/e and bond yields. It's a major stretch to think we're in a crazy bubble.

[Call_Me_Op]

Not that it matters as everyone here is diversified and buy/hold investors, but.....

I told myself that next time we were in a crazy stock bubble, I would realize it. Now I look at the crazy IPO's going on with companies that have no earnings or chance of earnings for a long time raising millions. I see my house price back up higher than it was in 2007. SP500 PE ratio at 20 vs 15 avg. Amazon at 298 a share and no profit. Groupon $5B mkt cap LOL. Dow at 17500, 75% up in 5 years. Just want to say, this time I saw it coming and wasn't wrapped up into believing that this was normal.

So....have you sold all of your stocks?

I am staying the course, since my asset allocation assumes there will be periodic market bubbles and downturns.

[nisiprius]

It probably is a bubble, but so what? The stock market is... sort of like having a very strange father who says "I will pay you a generous allowance, but only on condition that you put half of it into pyramid clubs, Ponzi schemes, and chain letters." If you want the risk premium, you must take the risk, and a big part of that risk is the ups and downs of the unending series of bubbles that are an integral part of the stock market.

Can't you avoid the bubbles? It certainly seems as if you should be able to... just as if it seems to everyone that you ought to be able to do better than the index just by, for gosh sakes, not investing in the obvious dogs. Why do you want to put your money into every single bad stock on the face of the earth? Why do you want to buy stocks at historically high valuations? It also seems as if you ought to be able to produce perpetual motion by a clever arrangement of overbalancing weights on a wheel, or a kind of motor-generator where you deactivate the magnets as they get closer and reactivate them as they move apart. And, look, I've almost got it working, you can see from these meter readings and spreadsheets that I will be generating free energy just as soon as I get some better bearings and adjust the timing.

[LadyGeek]

This thread is now in the Investing - Theory, News & General forum (general investing).

[LongerPrimer]

I Don't know. Don't really care.

Current retirement assets:
33% of retirement is guaranteed SS and small pension.
25% are in guaranteed dVAs, which will step up this month probably 8-9%, net fees. Actual accounts.
25% are in trading accounts, +30% and +9% YTD. Currently about 75% pure cash holding.
17% index funds.

All figures are approximate within a few %. I haven't performed a strict accounting this month.
As you can read, 58% of the assets are guaranteed and inflation protected.

[dbCooperAir]

The stock market is... sort of like having a very strange father who says "I will pay you a generous allowance, but only on condition that you put half of it into pyramid clubs, Ponzi schemes, and chain letters.

This is the best quote of the week, Wall Street sure feels that way at times or all the time for some.

[HomerJ]

Dow at 17500, 75% up in 5 years.

It's actually more like up 150% in 5 years. (DOW was around 7000 at the bottom)

However, one could also say it's only up 25% in the last 7 years. (DOW hit 13900 in 2007)

Both of those statements are true. So which one do you act on?

[goblue100]

Not that it matters as everyone here is diversified and buy/hold investors, but.....

I told myself that next time we were in a crazy stock bubble, I would realize it. Now I look at the crazy IPO's going on with companies that have no earnings or chance of earnings for a long time raising millions. I see my house price back up higher than it was in 2007. SP500 PE ratio at 20 vs 15 avg. Amazon at 298 a share and no profit. Groupon $5B mkt cap LOL. Dow at 17500, 75% up in 5 years. Just want to say, this time I saw it coming and wasn't wrapped up into believing that this was normal.

So what specific actions have you taken? Or are you staying the course?
Just to go on the record, I do not think this is a "bubble". It has been a very nice bull market, and a decline may come soon, but it would shock me to have a 50% decline anytime in the next year or so. My crystal ball is cloudy further out than that.

Hey, making predictions is fun.

[Tigermoose]

I better get into the triple leveraged cash position.

[mpowered]

I think we are looking at what is going to be a continued bull market. Energy is cheap (not because of lack of demand) and the US economy is picking up. Euro economy is in the tanks, and Asia is slowing down, which are the only two risks.

[HomerJ]

I think we are looking at what is going to be a continued bull market. Energy is cheap (not because of lack of demand) and the US economy is picking up. Euro economy is in the tanks, and Asia is slowing down, which are the only two risks.

I think this is possible too...

People keep saying that the DOW is up 150% in 5 years, all time new highs, must be a bubble!

Well like I said, it's only up 25% if you go back 7 years (Both these numbers ignore dividends)

and one should remember that during the last great bull market, the DOW went up 1000% (10x - 1000 in 1982 to 10,000 in 1999), so a "mere" 150% increase (from the bottom of a crash) doesn't automatically signal we're in bubble territory.

[an_asker]

Dow at 17500, 75% up in 5 years.

It's actually more like up 150% in 5 years. (DOW was around 7000 at the bottom)

However, one could also say it's only up 25% in the last 7 years. (DOW hit 13900 in 2007)

Both of those statements are true. So which one do you act on?

I will then go with the NASDAQ - check out its 15 year returns

[Clearly_Irrational]

Not that it matters as everyone here is diversified and buy/hold investors, but.....

I told myself that next time we were in a crazy stock bubble, I would realize it. Now I look at the crazy IPO's going on with companies that have no earnings or chance of earnings for a long time raising millions. I see my house price back up higher than it was in 2007. SP500 PE ratio at 20 vs 15 avg. Amazon at 298 a share and no profit. Groupon $5B mkt cap LOL. Dow at 17500, 75% up in 5 years. Just want to say, this time I saw it coming and wasn't wrapped up into believing that this was normal.

Maybe, but if we are, it's not likely that it's over yet. I keep an eye on it since my IPS has an irrational market provision. At the moment my composite crash indicator is only reading 7/100 (over 30 is usually bad). Stock market deviation is within the normal range. Leading indicator swirlogram shows slowdown not contraction. NBER expansion is still within the one sigma range. North American rail traffic growth is still positive. As best I can tell everything is quiet at the moment.

[Clearly_Irrational]

The stock market is... sort of like having a very strange father who says "I will pay you a generous allowance, but only on condition that you put half of it into pyramid clubs, Ponzi schemes, and chain letters."

Hah, I like that one.

[KyleAAA]

This doesn't feel anything like 1999 or 2007 to me. High school students were using their birthday money to day trade stocks in computer class in 1999. I don't think we're quite there yet.

[HomerJ]

Not that it matters as everyone here is diversified and buy/hold investors, but.....

I told myself that next time we were in a crazy stock bubble, I would realize it. Now I look at the crazy IPO's going on with companies that have no earnings or chance of earnings for a long time raising millions. I see my house price back up higher than it was in 2007. SP500 PE ratio at 20 vs 15 avg. Amazon at 298 a share and no profit. Groupon $5B mkt cap LOL. Dow at 17500, 75% up in 5 years. Just want to say, this time I saw it coming and wasn't wrapped up into believing that this was normal.

Maybe, but if we are, it's not likely that it's over yet. I keep an eye on it since my IPS has an irrational market provision. At the moment my composite crash indicator is only reading 7/100 (over 30 is usually bad). Stock market deviation is within the normal range. Leading indicator swirlogram shows slowdown not contraction. NBER expansion is still within the one sigma range. North American rail traffic growth is still positive. As best I can tell everything is quiet at the moment.

If you can't trust the swirlogram, who can you trust?

[Clearly_Irrational]

If you can't trust the swirlogram, who can you trust?

What can I say, I like pretty graphics. All those business classes must be rotting my mind.

[Woodshark]

It also seems as if you ought to be able to produce perpetual motion by a clever arrangement of overbalancing weights on a wheel, or a kind of motor-generator where you deactivate the magnets as they get closer and reactivate them as they move apart. And, look, I've almost got it working, you can see from these meter readings and spreadsheets that I will be generating free energy just as soon as I get some better bearings and adjust the timing.

Nice post! I thought about this when I was about 12. Ummm...made perfect sense then. Now I'm 54 . It took me a few years to realize that there "ain't" no free friction, energy or lunch.

Still, I liked the analogy.

[alexfrey]

It might "feel" like a bubble becuase things have gone up a lot lately, but I don't think any of the evidence you cite is very compelling.

What particular IPOs do you believe have no potential for future profits? By the way, people have said that about every tech company of the past ten years and largely been wrong (Google, Facebook, etc.)?

A P/E of 20 might be rich, but seems a far cry from "bubble" land, particularly with long-term rates at 2.3%. We aren't even close to tech stocks circa 99 or Japanese stocks circa 1988.

I don't understand why the share price of Amazon is a relevant indicator of a bubble? Sure, they have no current profits, but in an efficient market, the value of a stock is the net present value of its future cash-flows, and amazon is already generating tons of cash and has the scope to generate a lot more in the future if Bezos decides to stop investing in the business and turn the cash-flow spigot on. I'm not a shareholder, but is it really that unreasonable that the market would assign the #1 e-commerce company in the US a $139 billion market cap, when Google, Apple, and even Microsoft are all more than twice that? Heck even Facebook is now significantly larger (in cap terms) than Amazon.

Groupon is probably a long-shot, but if they can right-size that business it's clearly enormously cash-flow generative. There is a clear business model, they make money on every deal that's booked, it's certainly not the case that they have no hope of making any money for years to come.

It feels to me like people just want to say "oh it's like the 90s again, must be a bubble." But it's not like the 90s. The companies are very very different, interest rates are different, valuations are very different. It won't be the same story this time. History rhymes, but it doesn't necessarily repeat.

[z3r0c00l]

I better get into the triple leveraged cash position.

I am 2x short cash right now. The 1.89% ER hurts but...

[jdb]

At the moment my composite crash indicator is only reading 7/100 (over 30 is usually bad). Stock market deviation is within the normal range. Leading indicator swirlogram shows slowdown not contraction.

Enquiring minds are curious about the workings of your composite crash indicator.

[poker27]

So what are you going to do? Put your $ in cash and have a negative real return? Unfortunately I will need real returns to get the amount of $ I need some day, so risk is needed from my POV.

[nedsaid]

Everyone take a deep breath and relax. Repeat after me, this is not a stock market bubble. Say it again, this is not a stock market bubble.

We are seeing relatively high P/E ratios in the US Stock Market, one big reason is the very low level of interest rates. All other things being equal, P/E ratios are higher when interest rates are low. And interest rates are very low indeed. But we are not anywhere near the levels of the market in the early 2000's.

We also have had some fantastic corporate earnings. Great earnings tend to make great markets. Many large US Corporations are flush with cash.

Many individual investors having been burned badly in the 2000-2002 and the 2008-2009 bear markets are either out of the market or less heavily invested than they should be. A lot of folks are still pessimistic. I am just not seeing the euphoria out there that we saw in early 2000, I remember that it seemed like the NASDAQ went up 100 points a day!!! Take it from me, this is not early 2000.
This thread is good evidence of what I am talking about.

I am certainly not saying the US Stock Market is cheap. I am not saying this is a buying opportunity. If you are concerned about market valuations, it is a good opportunity to rebalance. This is also a good opportunity for those who want to reduce a bit their investment in the US Stock Market. If you are going to "panic", a good time to do it is when the market is hitting new highs.

Certainly, US Stock Market valuations are stretched but the market is not behaving irrationally.
We have forgotten what a true bull market looks like. New market highs are normal stock market behavior. Markets always look expensive in bull markets. If you need to rebalance, rebalance. If you need to reduce your percentage in stocks, reduce your percentage in stocks. But my gosh, this is not a bubble.

[JLJL]

... It also seems as if you ought to be able to produce perpetual motion by a clever arrangement of overbalancing weights on a wheel, or a kind of motor-generator where you deactivate the magnets as they get closer and reactivate them as they move apart. And, look, I've almost got it working, you can see from these meter readings and spreadsheets that I will be generating free energy just as soon as I get some better bearings and adjust the timing.

I like the one with the ping pong balls floating on the surface of a tank of water then dropping off a ledge into a trough where they are fed back into the bottom of the water and then float back to the top. My son and I are going to do that project this weekend.

[Clearly_Irrational]

Enquiring minds are curious about the workings of your composite crash indicator.

Here's a thread where I talk about it:

http://www.bogleheads.org/forum/viewtop ... +indicator

[tbradnc]

I will watch for the sky to fall when I start seeing multiple threads on whether or not commodities (or more specifically, PIMCO Commodity Real Return Strategy Fund PCRIX) should be added to portfolios for diversification.

When PCRIX starts trending - watch out.

[trasmuss]

Domestic stocks may not be cheap, but neither are bonds. Both have had a good year. I personally have no intention of increasing my allocation to international stocks. Yes, they seem "cheap" compared to domestics but they can stay that way (or get cheaper) for a long time. The value of the dollar has much to do with the underperformance of international funds. Guessing on the value of the dollar going forward is like guessing on interest rates; and I never guessed that Total Bond would be up 5% YTD this year.

If you are worried about a bubble past history shows that international stocks will not protect you. They may lower day to day volatility but the real question is whether they will improve total return. No one knows, of course.

[TheTimeLord]

Not that it matters as everyone here is diversified and buy/hold investors, but.....

I told myself that next time we were in a crazy stock bubble, I would realize it. Now I look at the crazy IPO's going on with companies that have no earnings or chance of earnings for a long time raising millions. I see my house price back up higher than it was in 2007. SP500 PE ratio at 20 vs 15 avg. Amazon at 298 a share and no profit. Groupon $5B mkt cap LOL. Dow at 17500, 75% up in 5 years. Just want to say, this time I saw it coming and wasn't wrapped up into believing that this was normal.

Just a couple observations.

VTI has a PE of 17
SPY has a PE of 18
When has Amazon ever had a profit?
Groupon has huge amounts of user data and their purchase preferences (I would speculate it is on some takeover lists), in 2012 Google offered $6B for Groupon so they have lost value not skyrocketed.
Dow is up 53.5% in 15 years.
Alibaba has a 46.3% profit margin and PEG well under 2.