Does any indicator not predict a 2000/2007'ish crash?

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whiteprius
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Does any indicator not predict a 2000/2007'ish crash?

Post by whiteprius »

I did a bunch of analysis to see if I should go into SSO (pays 2x S&P500 return) and decided to not only stay out, but to move all my funds into at worst (riskiest) high yield bond funds (which offer a good share of the upside of the equity markets, with less downside. Specifically, they recover from their lows much faster than equity funds).

I can't believe Donald Trump tweeted that consumer confidence hasn't been this high since Nov. 2000. What happened after then?

What happened after Bush's big tax cuts?

A crash seems inevitable in 2018.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by whiteprius »

Not to mention the Bitcoin bubble, which is the craziest bubble in history. At least tulips had some inherent value, they looked good, and at least tech stocks had some (albeit highly unlikely) case for continued increases. Bitcoin has zero value (except to the black market) yet people keep buying it hoping to sell it for more later.

It seems like the investing world has lost its mind.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by WhiteMaxima »

I did see housing crash because rent to buy ratio is outrages. But I didn't see stock market come down with it. Don't no if bitcoin will bring down stock market this time.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by whiteprius »

Interesting. Where I live, westside LA, rents are comparable to the monthly payment on a 30 year mortgage for the equivalent property. Not sure nationally though.The bitcoin bubble is evidence of irrational exuberance. Once it crashes the psychological effect will spread to other investments.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by WhiteMaxima »

Bitcoin frenzy is not wide spread like 2007 housing.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by whiteprius »

Oh no I don't think bitcoin will be the primary cause. I think the stock market is just way overvalued on an EPS and just common sense basis. I think bitcoin is a symptom of the irrational exuberance infecting the investing world. Everywhere I look screams bubble.

That being said I'm too much of a coward to actually by SH (returns negative of S&P500) though so what do I know.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by SmileyFace »

whiteprius wrote: Tue Dec 12, 2017 3:43 pm A crash seems inevitable in 2018.
This is what some folks came on posting last year...and the year before...and the year before.
It seems to me we could have another GREAT year.
Why does it seem different to you?
In any case - Best of luck.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by larryslocum1982 »

Bitcoin is too small to effect the stock market.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by livesoft »

Here is something that does not predict a crash: Jobs. Jobs. And more Jobs. Unemployment quite low and companies cannot find good employees. Why are you ignoring that?
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by whiteprius »

DaftInvestor wrote: Tue Dec 12, 2017 4:03 pm
whiteprius wrote: Tue Dec 12, 2017 3:43 pm A crash seems inevitable in 2018.
This is what some folks came on posting last year...and the year before...and the year before.
It seems to me we could have another GREAT year.
Why does it seem different to you?
The psychology wasn't this "boomy" in 2016. We had just come off of very low returns in 2015 and everyone's head was on straight. 2016 had zero returns until Trump won, and the index went from zero growth in 2016 to 10% growth in 2016 in a few months. 2017 has been absolutely crazy. The stock market boom. The bitcoin boom. People are just feeling fearless when investing, which is the hallmark of a pending crash.
Last edited by whiteprius on Tue Dec 12, 2017 5:36 pm, edited 1 time in total.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by whiteprius »

livesoft wrote: Tue Dec 12, 2017 4:05 pm Here is something that does not predict a crash: Jobs. Jobs. And more Jobs. Unemployment quite low and companies cannot find good employees. Why are you ignoring that?
See 2000 and 2007. Layoffs come after the crash. Not before.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by rkhusky »

whiteprius wrote: Tue Dec 12, 2017 3:47 pm Not to mention the Bitcoin bubble, which is the craziest bubble in history. At least tulips had some inherent value, they looked good, and at least tech stocks had some (albeit highly unlikely) case for continued increases. Bitcoin has zero value (except to the black market) yet people keep buying it hoping to sell it for more later.

It seems like the investing world has lost its mind.
Bitcoin is not investing. Bitcoin is gambling. See Beanie Baby Bubble.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by HomerJ »

whiteprius wrote: Tue Dec 12, 2017 3:43 pmA crash seems inevitable in 2018.
You should sell your crystal ball for a billion gajillion dollars... That's the real way to get rich!

Oh, and on a serious note, high-yield bonds (junk bonds) are not guaranteed to have less downside than stocks nor recover faster.

We may indeed have a crash in 2018, but people have been predicting a crash every year since 2011. With far better reasons. Greek debt crisis, government shutdown, Brexit, inflation sure to heat up, interest rates sure to heat up, etc., etc. Oh and valuations. Every year, people have pointed out valuations are too high and a crash is inevitable SOON.

Sooner or later, someone who cries doom will be right. Maybe even you. But don't think you're smarter than the average bear. You might have just guessed lucky.

But if we don't have a crash next year, I guarantee there will be another poster coming along, predicting a inevitable crash in 2019.

Again, sooner or later, a crash will indeed happen. But no one can predict when. So ALWAYS be prepared for it to happen tomorrow. Because it might.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by SmileyFace »

whiteprius wrote: Tue Dec 12, 2017 4:08 pm
DaftInvestor wrote: Tue Dec 12, 2017 4:03 pm
whiteprius wrote: Tue Dec 12, 2017 3:43 pm A crash seems inevitable in 2018.
This is what some folks came on posting last year...and the year before...and the year before.
It seems to me we could have another GREAT year.
Why does it seem different to you?
The psychology wasn't this "boomy" in 2015. We had just come off of 2014 which had slightly negative returns and everyone's head was on straight. 2016 wasn't this boomy either, until Trump won, and the index went from zero growth in 2016 to 10% growth in 2016 in a few months. 2017 has been absolutely crazy. The stock market boom. The bitcoin boom. People are just feeling fearless when investing, which is the hallmark of a pending crash.
Bitcoin isn't the stock market so I'll put that aside as I don't think a bitcoin crash will necessarily take the stock market down with it. (and I agree - wouldn't touch those tulips).
Some people are feeling fearless but its because job creation is up, consumer-confidence is up, the GDP is up, growth is increasing, ... all with more fuel expected with a corporate tax cut which could propel growth further ... I would think 2018 a year of more exuberance with perhaps a crash in 2019 or 2020. But since I don't know I'm going to stay the course and just keep rebalancing my allocations as things change.
If you believe there is a big crash coming - don't you expect High-Yield Bonds to drop as well? Seems an interesting shift to make if you are looking for safety.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by whiteprius »

HomerJ wrote: Tue Dec 12, 2017 4:17 pm
Oh, and on a serious note, high-yield bonds (junk bonds) are not guaranteed to have less downside than stocks nor recover faster.
That's definitely not true. Compare e.g. FAGIX to the FSTVX. They get back to 100% in about 1/3 of the time. Slightly lower upside though.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by lostdog »

livesoft wrote: Tue Dec 12, 2017 4:05 pm Here is something that does not predict a crash: Jobs. Jobs. And more Jobs. Unemployment quite low and companies cannot find good employees. Why are you ignoring that?
+1
Stocks-80% || Bonds-20% || VTI/VXUS/AOR
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by whiteprius »

DaftInvestor wrote: Tue Dec 12, 2017 4:21 pm Some people are feeling fearless but its because job creation is up, consumer-confidence is up, the GDP is up, growth is increasing, ... all with more fuel expected with a corporate tax cut which could propel growth further ... I would think 2018 a year of more exuberance with perhaps a crash in 2019 or 2020. But since I don't know I'm going to stay the course and just keep rebalancing my allocations as things change.
If you believe there is a big crash coming - don't you expect High-Yield Bonds to drop as well? Seems an interesting shift to make if you are looking for safety.
But this is what I don't get. Consumer confidence at record levels, high job creation and irrational investing (of which BTC is an example) together are the classic indicia of a pending collapse. How could someone see all these three things at once, combined with irrational EPS levels, and think yeah the S&P is going to keep going up? See my other post on HYB funds. They bounce back quickly so I won't cry too much. You're right though the fact that I'm not in SH to short the S&P demonstrates my uncertainty.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by HomerJ »

whiteprius wrote: Tue Dec 12, 2017 4:21 pm
HomerJ wrote: Tue Dec 12, 2017 4:17 pm
Oh, and on a serious note, high-yield bonds (junk bonds) are not guaranteed to have less downside than stocks nor recover faster.
That's definitely not true. Compare e.g. FAGIX to the FSTVX. They get back to 100% in about 1/3 of the time. Slightly lower upside though.
Got back to 100% in the past. Get your verbs right. Not guaranteed the next crash will play out like the last one. But sure maybe.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by whiteprius »

HomerJ wrote: Tue Dec 12, 2017 4:28 pm Got back to 100% in the past. Get your verbs right. Not guaranteed the next crash will play out like the last one. But sure maybe.
As far as I know it's mathematically highly unlikely for a prudently selected batch US corp. high yield bonds to fall more than U.S. equities, and they do recover faster basically because corporations pay off bondholders first. They're also not subject to IR risk of you get a low enough duration. But they will fall so you have to give them at least a year to recover, and they get slighly less upside.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by HomerJ »

whiteprius wrote: Tue Dec 12, 2017 4:24 pm
DaftInvestor wrote: Tue Dec 12, 2017 4:21 pm Some people are feeling fearless but its because job creation is up, consumer-confidence is up, the GDP is up, growth is increasing, ... all with more fuel expected with a corporate tax cut which could propel growth further ... I would think 2018 a year of more exuberance with perhaps a crash in 2019 or 2020. But since I don't know I'm going to stay the course and just keep rebalancing my allocations as things change.
If you believe there is a big crash coming - don't you expect High-Yield Bonds to drop as well? Seems an interesting shift to make if you are looking for safety.
But this is what I don't get. Consumer confidence at record levels, high job creation and irrational investing (of which BTC is an example) together are the classic indicia of a pending collapse. How could someone see all these three things at once, combined with irrational EPS levels, and think yeah the S&P is going to keep going up? See my other post on HYB funds. They bounce back quickly so I won't cry too much. You're right though the fact that I'm not in SH to short the S&P demonstrates my uncertainty.
Greenspan made his "irrational exuberance" speech in 1996, not 2000. He (and many other people) saw all the same signs you are seeing today.

Yet the market MORE THAN DOUBLED from 1996 to 2000, before crashing 40%. Ironically, the market never got below the 1996 levels again. So 1996, when everything looked crazy enough for the FED CHAIRMAN to make a public speech about it, turned out to be the cheapest time to buy stocks in the past 21 years.

No one knows enough to predict anything. Don't try. Assume the market could crash tomorrow. Because it might. And then set an Asset Allocation that you can hold long-term, regardless if the market crashes tomorrow or in 4 years.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by HomerJ »

whiteprius wrote: Tue Dec 12, 2017 4:32 pm
HomerJ wrote: Tue Dec 12, 2017 4:28 pm Got back to 100% in the past. Get your verbs right. Not guaranteed the next crash will play out like the last one. But sure maybe.
As far as I know it's mathematically highly unlikely for a prudently selected batch US corp. high yield bonds to fall more than U.S. equities, and they do recover faster basically because corporations pay off bondholders first. They're also not subject to IR risk of you get a low enough duration. But they will fall so you have to give them at least a year to recover, and they get slighly less upside.
Corporations that have rock-solid financials don't have to issue "high-yield" bonds. Companies with shakier financials can't get investors to buy their bonds at normal prices, so they have to offer higher than normal yields to borrow money.

Those companies with shakier financials are more likely to be in trouble during a recession or crash.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by whiteprius »

HomerJ wrote: Tue Dec 12, 2017 4:33 pm Greenspan made his "irrational exuberance" speech in 1996, not 2000. He (and many other people) saw all the same signs you are seeing today.

Yet the market MORE THAN DOUBLED from 1996 to 2000, before crashing 40%. Ironically, the market never got below the 1996 levels again. So 1996, when everything looked crazy enough for the FED CHAIRMAN to make a public speech about it, turned out to be the cheapest time to buy stocks in the past 21 years.
Yes 1996 is a good counterexample. But I would distinguish today by virtue of the fact that the 96-00 growth was caused by a new technology, the internet. There is not such unique element today. Also, P/E ratios were lower in 1996, and you had a more rational president.

Edit: Also, if you went into HYBs in 1997 you'd still be ahead of where you'd be if you were in the S&P.

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by SmileyFace »

whiteprius wrote: Tue Dec 12, 2017 4:24 pm
DaftInvestor wrote: Tue Dec 12, 2017 4:21 pm Some people are feeling fearless but its because job creation is up, consumer-confidence is up, the GDP is up, growth is increasing, ... all with more fuel expected with a corporate tax cut which could propel growth further ... I would think 2018 a year of more exuberance with perhaps a crash in 2019 or 2020. But since I don't know I'm going to stay the course and just keep rebalancing my allocations as things change.
If you believe there is a big crash coming - don't you expect High-Yield Bonds to drop as well? Seems an interesting shift to make if you are looking for safety.
But this is what I don't get. Consumer confidence at record levels, high job creation and irrational investing (of which BTC is an example) together are the classic indicia of a pending collapse. How could someone see all these three things at once, combined with irrational EPS levels, and think yeah the S&P is going to keep going up? See my other post on HYB funds. They bounce back quickly so I won't cry too much. You're right though the fact that I'm not in SH to short the S&P demonstrates my uncertainty.
Things like consumer confidence and job growth continued for long periods before the prior crashes - if crashes occurred as soon as there was high confidence and higher job growth the 2000 crash would have occurred in 1998. I haven't analyzed all the indicators but I would venture to guess if you really assume things will play out the way they did leading up to 2000 (although I'm confident no two crashes will ever look the same) then a crash would be in 2019 or 2020; not in 2018.
Also - if you are certain there will be a crash - and believe that things will play out like they did in the past - why invest in HYBs right now knowing you will have a big drop? Move to cash and then jump back in at the bottom.
(also - please let us know if you are really just trolling us :) )
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by whiteprius »

HomerJ wrote: Tue Dec 12, 2017 4:35 pm
Corporations that have rock-solid financials don't have to issue "high-yield" bonds. Companies with shakier financials can't get investors to buy their bonds at normal prices, so they have to offer a higher than normal yields to borrow money.

Those companies with shakier financials are more likely to be in trouble during a recession or crash.
Oh no such corps definitely issue B bonds. FAGIX holds Google, GM, JPMorgan, T-Mobile and other big name corp. bonds.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by whiteprius »

DaftInvestor wrote: Tue Dec 12, 2017 4:37 pm Also - if you are certain there will be a crash - and believe that things will play out like they did in the past - why invest in HYBs right now knowing you will have a big drop? Move to cash and then jump back in at the bottom.
(also - please let us know if you are really just trolling us :) )
I'm just uncertain. I'm sure the S&P isn't a good investment, but I think there's enough of a chance of an upside that I want some of it so I went HYBs, knowing that if there is a crash in 2018 I'll be back to even by mid-2019 and if there isn't a crash I'll get 80% or so of the upside.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by Sandtrap »

OP:
Read this wonderful write up by "garland wizzer" (wizard) from a recent thread.
Hope the excerpt is okay. . . with him. Apologies if not but I saved it because it was so so good.
I unsuccessfully was trying to correlate R/E cycles with market movement.

When asset prices are not driven by earnings growth. Correction? Dip?
viewtopic.php?f=10&t=234281&p=3659178#p3659178

<snip>MARKET MOVEMENT BY GARLAND WIZZER

Corporate profit growth has been tepid by historical bull market standards during the current bull market. Most of the market gains have come from PE multiple expansion. There are reasons why PE might rationally expand: secular low interest rates and low inflation, slow but stable economic and corporate profit growth. My take is that valuations are generous but we're not in a bubble. The article suggests the market could drop by 40%+ in the near term. Bear markets defined as drops of 20% or greater are generally associated with recessions. There are no indications now of a recession in the foreseeable future. Currently there is co-ordinated world wide economic and corporate profit growth. Instead the economy is now and has been for most of this bull market run in the "Goldilocks zone"--low inflation, modest and stable corporate profit growth, modest and stable economic growth. Historically slow stable growth coupled low inflation has been good for equity markets and our very low interest rates make this one more so.

At some unpredictable point in the future this bull market is going to end. As long as our economy keeps growing and inflation remains under control, I suspect that it will not end in a major bear market like the last two (2000-3, 2007-9) but rather in a more modest correction. Our most likely risk IMO is a long period of positive but lower than historical market returns going forward. Drastic changes in asset allocation based on fear on a market collapse in the near future is a bet I wouldn't make now.
<snip>

Thanks, "garland wizzer"
j :D
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by Prudence »

whiteprius wrote: Tue Dec 12, 2017 3:43 pm I did a bunch of analysis to see if I should go into SSO (pays 2x S&P500 return) and decided to not only stay out, but to move all my funds into at worst (riskiest) high yield bond funds (which offer a good share of the upside of the equity markets, with less downside. Specifically, they recover from their lows much faster than equity funds).

I can't believe Donald Trump tweeted that consumer confidence hasn't been this high since Nov. 2000. What happened after then?

What happened after Bush's big tax cuts?

A crash seems inevitable in 2018.
I thought Schiller's comments a few months ago were useful. He said that while the CAPE is high by historical standards, it (and the stock market) could keep going up for another year or two before it "corrects", if it corrects. So, if you are waiting for a buying opportunity, have patience!
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by iamlucky13 »

whiteprius wrote: Tue Dec 12, 2017 4:00 pm Oh no I don't think bitcoin will be the primary cause. I think the stock market is just way overvalued on an EPS and just common sense basis. I think bitcoin is a symptom of the irrational exuberance infecting the investing world. Everywhere I look screams bubble.

That being said I'm too much of a coward to actually by SH (returns negative of S&P500) though so what do I know.
In which sectors are you seeing this exuberance, and how predominant is it in each sector?

I haven't done any rigorous study, but it seems like 3/4 of the commentary I see on the stock market, for example, is concern about high valuations or similar hesitance to invest more heavily. Similar for real estate, where prices are high mainly due to limited supply in the hot markets and those who need property seem to be buying reluctantly while most others stay put. For bonds, there is regular caution being expressed about the "end of the bull market" and the possibility of several years of value declines due to rising interest rates.

The fact that people are given serious consideration to these concerns is different from 2007.

Yet people have money to invest still, and it has to go somewhere, preferably somewhere that beats inflation. So bonds get bought even at high prices and stocks even at high valuations.

In fact, I would speculate Bitcoin is getting a lot of attention precisely because people are not very exuberant about stocks, bonds, and real estate.

And of course, despite it's current high value, Bitcoin is not so far in a position where it should drive the market. $275 billion is less than 0.5% of the global stock market cap.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by lack_ey »

HomerJ wrote: Tue Dec 12, 2017 4:33 pm Greenspan made his "irrational exuberance" speech in 1996, not 2000. He (and many other people) saw all the same signs you are seeing today.

Yet the market MORE THAN DOUBLED from 1996 to 2000, before crashing 40%. Ironically, the market never got below the 1996 levels again. So 1996, when everything looked crazy enough for the FED CHAIRMAN to make a public speech about it, turned out to be the cheapest time to buy stocks in the past 21 years.
Hm, I think this example is instructive but maybe not entirely correct if you consider time value of money, rates, and what "cheapest" might more fairly mean.

If you actually pulled out of stocks then and waited in cash (here, specifically a money market fund that one could readily use, much less bonds), you would have come out ahead by the bottom in 2002. But realistically you're unlikely to actually call the bottom and jump in 100% then or even close to it.

Image

Interestingly enough, high yield bonds lost to cash through that period.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by bottlecap »

1. Someday, you will be right.

2. You will not be able to guess when you will be right, even with a “bunch” of research.

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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by whiteprius »

lack_ey wrote: Tue Dec 12, 2017 5:16 pm Interestingly enough, high yield bonds lost to cash through that period.
I think that's because back then MMFs paid a huge interest rate. Today, that line would be near-flat, similar story for high quality bonds e.g. Barclay's Int. Agg.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by livesoft »

There are not enough "Why not 100% stocks?" threads on bogleheads.org, too.

I haven't even seen a "Why not 100% BTC?" thread yet either.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by Bastiat »

whiteprius wrote: Tue Dec 12, 2017 3:43 pm I did a bunch of analysis to see if I should go into SSO (pays 2x S&P500 return) and decided to not only stay out, but to move all my funds into at worst (riskiest) high yield bond funds (which offer a good share of the upside of the equity markets, with less downside. Specifically, they recover from their lows much faster than equity funds).

I can't believe Donald Trump tweeted that consumer confidence hasn't been this high since Nov. 2000. What happened after then?

What happened after Bush's big tax cuts?

A crash seems inevitable in 2018.

The psychology wasn't this "boomy" in 2015. We had just come off of 2014 which had slightly negative returns and everyone's head was on straight. 2016 wasn't this boomy either, until Trump won, and the index went from zero growth in 2016 to 10% growth in 2016 in a few months. 2017 has been absolutely crazy. The stock market boom. The bitcoin boom. People are just feeling fearless when investing, which is the hallmark of a pending crash.
The "number of people sure a market crash is imminent and thus making rash financial decisions" indicator is a screaming buy.

After Bush's tax cuts were implemented in 2002/2003: the recession ended, record tax revenues were collected, and the tax cuts were all extended in 2010. A person in the 25% tax bracket today would be in the 28% bracket, and a person in the 28% bracket would be in a 31% bracket.

The total return of the S&P 500 in 2014 was (positive) 13.7%, after a total return of 32.7% in 2013.

The S&P total return for 2017 is just over 21%. Since 1928, the S&P 500 has returned >25% 23 times, hardly making this year "absolutely crazy".

You don't even know what the market did 3 years ago, but you think you can predict the future??
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by lack_ey »

whiteprius wrote: Tue Dec 12, 2017 5:24 pm
lack_ey wrote: Tue Dec 12, 2017 5:16 pm Interestingly enough, high yield bonds lost to cash through that period.
I think that's because back then MMFs paid a huge interest rate. Today, that line would be near-flat, similar story for high quality bonds e.g. Barclay's Int. Agg.
Bonds are priced relative to cash, among other things (like other bonds). We all know cash rates were higher back then, but that's just the baseline regardless. If I can get a T-bill paying 5%, I'm not going to invest in a junk bond with YtM of 5%, unless maybe everybody is absolutely sure rates are going to fall, and intermediate-term bonds yields are way below 5%. It doesn't work that way. There should on average be an excess return on junk bonds over cash (and safer bonds, which they lost to even more), no matter what the cash rate is, or the risk/return is horribly broken.

The better thing to point out would be that credit spreads were very narrow in the late '90s, even more so than now, and basically just widened over the period depicted. Of course, that also opens up the argument against junk bonds today about today's spreads being relatively narrow.

It just happens that risks can easily go unrewarded over a period of several years or longer. Otherwise they wouldn't be risks.
Last edited by lack_ey on Tue Dec 12, 2017 5:38 pm, edited 1 time in total.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by whiteprius »

Bastiat wrote: Tue Dec 12, 2017 5:31 pm You don't even know what the market did 3 years ago, but you think you can predict the future??
Whoops confused 2014 and 2015 was going from memory. Fixed it. Same point though.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by whiteprius »

lack_ey wrote: Tue Dec 12, 2017 5:36 pm
whiteprius wrote: Tue Dec 12, 2017 5:24 pm
lack_ey wrote: Tue Dec 12, 2017 5:16 pm Interestingly enough, high yield bonds lost to cash through that period.
I think that's because back then MMFs paid a huge interest rate. Today, that line would be near-flat, similar story for high quality bonds e.g. Barclay's Int. Agg.
Bonds are priced relative to cash, among other things (like other bonds). We all know cash rates were higher back then, but that's just the baseline regardless. If I can get a T-bill paying 5%, I'm not going to invest in a junk bond with YtM of 5%, unless maybe everybody is absolutely sure rates are going to fall, and intermediate-term bonds yields are way below 5%. It doesn't work that way.

Also, it's clear that total bond > cash > junk bonds over the period, so the extra risk of the junk bonds was not rewarded in any sense relative to other parts of fixed income.

The better thing to point out would be that credit spreads were very narrow in the late '90s, even more so than now, and basically just widened over the period depicted. Of course, that also opens up the argument against junk bonds today about today's spreads being relatively narrow.
Yes if you're certain there will be a crash the total bond is the way to go (actually you should do SH or another fund that returns negative of S&P), but if you feel a crash coming but you're not 100% sure then HYBs beat all of them. If you got into HYBs in 97 you'd currently be ahead of where you'd be if you went into the S&P or total bond. Link here http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by nisiprius »

I have no idea whether there will be a 2000 or 2007-ish crash. I do think people are overlooking the fact that whereas the 1995-2000 bull market was riding on top of a growing stock market--it was a speed-up of a stock market that was already growing--the 2009-2017 bull market started out deep in a hole, and half of the growth since then has just been climbing out of the hole.

In 1996, after Greenspan's "irrational exuberance" speech I said to myself "Given the way Greenspan couches his language, that is the closest thing to a clear warning we'll ever get and he's in a position to know." I pulled back somewhat. I have a big old pack of rationalizations that amount to saying that I made a mistake and pulled a dumb move but the final result was that I didn't hurt myself much. But the point is, the time lag between my belief that there would be a crash and the crash was over three years.

[Added: P.S. My rationalization, "it was a dumb move but the final result was that I didn't hurt myself much" is very much in the general spirit of lack_ey's chart.]

I don't think the current rate of growth in bitcoin is sustainable, therefore I think it will end. But, as with the stock market in late 1996, it might take three years. No, I don't really believe that--because the rate of growth in bitcoin is incomparably higher--but one of the things I've learned is that things I don't believe could happen, do happen. One of the characteristics of bubbles is that they just keep going on and on and on longer than anyone believes possible, until the people who've stayed out get tired of watching their friends get rich and jump in, too. Anyway, I don't think it will on for three years, and when it does end I don't think it will end by reaching a "permanently high plateau." But, at the moment a bitcoin crash would be painful to anyone personally invested in bitcoin, but I don't see it bringing down the financial system or anything like that. It just isn't big enough (compared to the stock market or the bond market) yet, and there aren't huge institutional players building bitcoin houses of cards on leverage... yet.

Anyway, the point is: I rather think there are some bad times ahead, both for bitcoin (which I don't have money in) and the stock market (which I do have money in), but I'm just shrugging and staying the course. That's because I keep my stock allocation low enough that I am able to do that. I don't think you can get the risk premium without actually taking the risk. The idea that you can be heavily invested in stocks and then back out when you see a crash coming is very appealing, very tempting... but I don't think it's so.
Last edited by nisiprius on Tue Dec 12, 2017 5:57 pm, edited 1 time in total.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by lack_ey »

whiteprius wrote: Tue Dec 12, 2017 5:39 pm Yes if you're certain there will be a crash the total bond is the way to go (actually you should do SH or another fund that returns negative of S&P), but if you feel a crash coming but you're not 100% sure then HYBs beat all of them. If you got into HYBs in 97 you'd currently be ahead of where you'd be if you went into the S&P or total bond. Link here http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
Fidelity Capital & Income is very much not representative, significantly more aggressive than the average, also owns stocks and other assets at times, etc. and has been an outlier. The category average and the indexes have not beaten the S&P 500 so that is a pretty misleading claim without further clarification of which fund you're talking about.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by whiteprius »

Ignoring the natural bubble risk, crypto has a ton of political risk. As soon as a terrorist attack's financing is connected to a crypto they'll all be outlawed. Billions in wealth evaporated.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by whiteprius »

lack_ey wrote: Tue Dec 12, 2017 5:56 pm Fidelity Capital & Income is very much not representative, significantly more aggressive than the average, also owns stocks and other assets at times, etc. and has been an outlier. The category average and the indexes have not beaten the S&P 500 so that is a pretty misleading claim without further clarification of which fund you're talking about.
Oh no FAGIX is not a weird HYB fund. But any way I added a few other HYB funds with the same result. I have many more. Had to change the timeline slightly b/c some don't go all the way back to 97 but as you can see the same result. Might be a problem with the HYB indexes though they're not representative of HYB mutual funds and ETFs.
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
Last edited by whiteprius on Tue Dec 12, 2017 6:10 pm, edited 1 time in total.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by lack_ey »

whiteprius wrote: Tue Dec 12, 2017 5:58 pm Oh no FAGIX is not a weird HYB fund. But any way I added a few other HYB funds with the same result. I have many more. Had to change the timeline slightly b/c some don't go all the way back to 97 but as you can see the same result.
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
Which ones would you have picked in 1996 based on what you knew then? Which ones would you pick now? I'm curious about your selection procedure and what you've looked into.

Also, I thought we were talking about sub-investment grade corporate bonds, not emerging markets bonds (primarily sovereign). You mentioned prudently selecting "US corp. high yield bonds" so I'm not sure why you linked and emerging markets bond fund, unless you mean "high yield" to include that there, but not earlier.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by whiteprius »

Emerging market bonds and HYB corps funds offer similar risk/return profiles so I categorize both as HYB funds. Here are a bunch more such HYB funds. I think the HY corporate bond indices are not representative of HYB mutual funds; I say that because HYB funds one pulls up all have the return similar to FAGIX (3 year duration) or MWHYX (2 year duration) depending on the duration. I don't know why that HYB fund index underperforms seemingly all of them.

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by whiteprius »

Any way you might be right that FAGIX and the HYB mutual funds I'm picking are not what is traditionally called a HYB fund. Whatever category they are is the one I'm using for a "want upside but seriously scared of a crash" portfolio.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by HomerJ »

whiteprius wrote: Tue Dec 12, 2017 6:26 pm"want upside but seriously scared of a crash" portfolio.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by WanderingDoc »

WhiteMaxima wrote: Tue Dec 12, 2017 3:57 pm Bitcoin frenzy is not wide spread like 2007 housing.
You sure about that?

#1 downloaded app on the appstore is 'Coinbase'. #1 searched for query on Google is 'Bitcoin'. Pretty widespread if you ask me.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by BeneIRA »

whiteprius wrote: Tue Dec 12, 2017 4:08 pm
DaftInvestor wrote: Tue Dec 12, 2017 4:03 pm
whiteprius wrote: Tue Dec 12, 2017 3:43 pm A crash seems inevitable in 2018.
This is what some folks came on posting last year...and the year before...and the year before.
It seems to me we could have another GREAT year.
Why does it seem different to you?
The psychology wasn't this "boomy" in 2016. We had just come off of very low returns in 2015 and everyone's head was on straight. 2016 had zero returns until Trump won, and the index went from zero growth in 2016 to 10% growth in 2016 in a few months. 2017 has been absolutely crazy. The stock market boom. The bitcoin boom. People are just feeling fearless when investing, which is the hallmark of a pending crash.
I think we can disagree on the "boomy"-ness of 2016. They say when your Uber driver brags to you about how much he has made in the stock market that it is time to be scared. I had an Uber driver tell me how they made a killing, a colleague at the time who I can assure you did not know the difference between a stock and a bond and someone in the restroom bragging about how well they were doing. This whole "the bull market will end. A gigantic crash is coming!" has been permeating for years. I feel like in 2006 and 2007, only a handful of people were saying things were going to crash and they were ridiculed, for the most part. Now, it seems as if everyone has been predicting for years that this market will crash, so when it eventually does, everyone gets to be "right." How many of them will have already sold all of their stocks and bought tons of bonds right before the crash? Going out on a limb, I am going to say very few.

I believe there will be a crash, too, probably a very big crash, but I have no idea when it will happen.
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Re: Does any indicator not predict a 2000/2007'ish crash?

Post by Dottie57 »

whiteprius wrote: Tue Dec 12, 2017 3:43 pm I did a bunch of analysis to see if I should go into SSO (pays 2x S&P500 return) and decided to not only stay out, but to move all my funds into at worst (riskiest) high yield bond funds (which offer a good share of the upside of the equity markets, with less downside. Specifically, they recover from their lows much faster than equity funds).

I can't believe Donald Trump tweeted that consumer confidence hasn't been this high since Nov. 2000. What happened after then?

What happened after Bush's big tax cuts?

A crash seems inevitable in 2018.
Only thing so far that is inevitable is that the sun will rise somewhere tomorrow.
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Re: Does any indicator not predict a 2000/2007'ish crash?

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