Alan Greenspan says there are bubbles in both stocks and bonds

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zeugmite
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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by zeugmite » Thu Feb 01, 2018 3:11 pm

survivor wrote:
Thu Feb 01, 2018 3:01 pm
I wonder if the Fed really controls long term interest rates.
It does, as demonstrated during QE (and Japan's continued ability to hold the 10 year to 0%). But now the Fed probably hopes the long end backs up so they have a steeper yield curve to work with. They're holding to maturity and they kick the coupon payments back to the Treasury, so they don't really care.

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by garlandwhizzer » Fri Feb 02, 2018 11:42 am

Just to clarify for those who long for a protracted period of rising interest rates, apparently thinking it will be good for bond returns. That works only if inflation doesn't play a role which historically it usually does.

The following demonstrates the difference between a bond bull market and a bond bear market. Quoted from Morningstar Forums, Market Insights Section, posted earlier today:
1947-1980 (34 years): <--- bond return headwind (10 year Treasuries went from about 2% to about 15%)

Average Annual 10-year Treasury Return (not yield) = 2.76%

Average Inflation Rate = 4.40%

For that 34 year period, returns of 10-year treasures LAGGED inflation by 1.64%

1981-2017 (37 years) <--- bond return tailwind (10 year Treasuries went from about 15% to about 2.5%)

Average Annual 10-year Treasury Return (not yield) = 8.31%

Average Inflation Rate = 3.00%

For that 37 year period, returns of 10-year treasures LED inflation by 5.31%
In total that is about an annualized 7%/yr. difference in real bond returns between a rising rate environment and a falling rate environment largely due to the effects of inflation and expectations for future inflation. Many investors today have never experienced severe inflation or a bond bear market and focus instead on the very positive real returns that bonds have provided during its recent 3+ decade bull market. It would be foolish to expect a re-run of those returns in the future starting from where we are now in the bond market.

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siamond
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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by siamond » Fri Feb 02, 2018 1:07 pm

^^^^^^^^^^^^^

Very well said. Looking at bonds nominal returns and feeling 'safe' is misleading at best, and potentially downright dangerous. Looking at bonds should ALWAYS be put in perspective of past/future inflation. Purchasing power is a real quantity, not a nominal quantity.

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siamond
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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by siamond » Fri Feb 02, 2018 1:17 pm

Back to Greenspan, I wonder how many posters on this thread actually listened to what he said... We don't even have a link posted with his video, so here it is one (would be good to have the full interview):
https://www.bloomberg.com/news/articles ... -and-bonds

You'll notice his emphasis on long-term, debt and GDP/debt ratio, and possible impact on inflation. He's not even remotely suggesting any 'market timing' call. I think his points are very sound.

HenrysPlan2
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Stock and Bond bubble ?

Post by HenrysPlan2 » Fri Feb 02, 2018 1:56 pm

[Thread merged into here, see below. --admin LadyGeek]

Alan Greenspan said both in bubble and bursting soon? if both in bubble, thinking moving some stock to cash, I just start putting in the fund 2 months ago.


https://www.cnbc.com/2018/01/31/alan-gr ... bonds.html

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Re: Stock and Bond bubble ?

Post by willthrill81 » Fri Feb 02, 2018 2:15 pm

This is already being discussed in another thread. viewtopic.php?f=10&t=240068
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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by garlandwhizzer » Fri Feb 02, 2018 2:47 pm

Thanks for the link to Greenspan's interview, Siamond. I think his concern about rising debt levels is a valid concern and agree with Siamond that he made no call for imminent disaster in the near future. Massive levels of new debt stimulates the economy short term but it raises the risk for both stocks and bonds in the intermediate and long term going forward. Current estimates are that Treasury sales this year will have to double over last year. That alone by supply and demand will tend to raise interest rates. .
https://www.bloomberg.com/news/articles ... -to-pay-up

Tax reform and the anticipated increased infrastructure spending coming soon will certainly stimulate the economy but it will also substantially increase the deficit which is already quite high. Very little thought has been given to the long term consequences of our current massive levels of household debt/government deficit. When the helicopter drops money everyone is happy. This is partly due to the fact that we have been able to refinance and roll over that debt at very low interest rates in recent years. If interest rates rise substantially, the debt burden will cost a lot more to finance, and more and more Treasuries will have to be sold to finance that on an ongoing basis.

We wonder how can so many experts can tell us to expect lower than average real returns on both stocks and bonds in the future even while stocks have been booming for years and inflation has been under control. At some point financing economic growth with ever increasing debt, which we have been doing for decades now, reaches a tipping point, especially if inflation or rising rates intervene. I don't know if we're at or near that point now, but Greenspan's comments suggest he believes that at some point in the not too distant future we'll get there. Personally I don't think that thought is totally out in left field. The Forum likes to beat up on Greenspan with some justification but there may well be a grain of truth in his comments now. Bond and stock action in the last week or so offers some insight into what happens when fear of rising rates (which have risen very little) and fear of future inflation (which is still quite tame) get the slightest foothold. If expectations for rising rates and rising inflation in the future get well established, goodbye to the economic Goldilock's scenario (QE stimulus, ultra-low interest rates, very low inflation, slow steady economic growth) that has been such a boon to us investors.

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by david1082b » Fri Feb 02, 2018 3:04 pm

From 2010:
Former Federal Reserve Chairman Alan Greenspan said the recent rise in Treasury yields represents a “canary in the mine” that may signal further gains in interest rates. Higher yields reflect investor concerns over “this huge overhang of federal debt which we have never seen before,” Greenspan said in an interview today on Bloomberg Television’s “Political Capital With Al Hunt.”

“I’m very much concerned about the fiscal situation,” said Greenspan https://seekingalpha.com/article/195813 ... -coal-mine
Now he tells us. Very odd that AG would ignore the federal debt as a % of GDP that existed at the end of WWII, over 100%, very similar to the post-2009 era. Surely AG wasn't thinking in nominal terms, when the economy is much bigger these days than WWII? This ties in with the nominal debt ceiling obsession that continually causes government shutdowns when the economy just gets bigger in nominal terms most years anyway.

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by david1082b » Fri Feb 02, 2018 3:05 pm

survivor wrote:
Thu Feb 01, 2018 3:01 pm
Lots of people on here smarter than me, but when Mr. Buffet says buying bonds is like buying stocks with a 50 pe, when Mr. Gross says he is shorting Treasuries, and Mr. Greenspan says stocks and bonds are bubbles, I at least pause. Many things have happened in the pas 10 yrs that have never happened before.
I wonder if the Fed really controls long term interest rates.
I wonder what would happen if we had a spike in inflation.
I wonder what would happen if millions of investors ( Bogleheads excluded) decided to sell bonds.
I am not sure we have ever seen a bond market bubble burst.
Guess for now I will stay the course with my lowly CDs.
Bill Gross was shorting Treasuries in 2011. That didn't work out so well. Bill is shorting them again? OK, better luck this time I guess Bill.

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by Cookie Dough » Fri Feb 02, 2018 3:49 pm

zeugmite wrote:
Thu Feb 01, 2018 3:11 pm
survivor wrote:
Thu Feb 01, 2018 3:01 pm
I wonder if the Fed really controls long term interest rates.
It does, as demonstrated during QE (and Japan's continued ability to hold the 10 year to 0%). But now the Fed probably hopes the long end backs up so they have a steeper yield curve to work with. They're holding to maturity and they kick the coupon payments back to the Treasury, so they don't really care.
Economic disasters have much higher correlation with inflation than deflation. I wonder when we get our first sequential meeting rate hike.
Last edited by Cookie Dough on Sun Feb 04, 2018 11:20 pm, edited 1 time in total.

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by lws6772 » Fri Feb 02, 2018 4:00 pm

survivor wrote:
Thu Feb 01, 2018 3:01 pm
Lots of people on here smarter than me, but when Mr. Buffet says buying bonds is like buying stocks with a 50 pe, when Mr. Gross says he is shorting Treasuries, and Mr. Greenspan says stocks and bonds are bubbles, I at least pause. Many things have happened in the pas 10 yrs that have never happened before.
I wonder if the Fed really controls long term interest rates.
I wonder what would happen if we had a spike in inflation.
I wonder what would happen if millions of investors ( Bogleheads excluded) decided to sell bonds.
I am not sure we have ever seen a bond market bubble burst.
Guess for now I will stay the course with my lowly CDs.
Here's to lowly CDs, Salute! :sharebeer

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by LadyGeek » Fri Feb 02, 2018 4:01 pm

I merged HenrysPlan2's thread and one reply into the on-going discussion.

Please stay on-topic. Conjecture on what "might happen" with regards to economic policy and politics is off-topic. See: Non-actionable (Trolling) Topics
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HenrysPlan2
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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by HenrysPlan2 » Fri Feb 02, 2018 4:27 pm

But it’s scary with the big drops today and last two days. Feels scary since my funds are new to the market

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Pajamas
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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by Pajamas » Fri Feb 02, 2018 4:29 pm

HenrysPlan2 wrote:
Fri Feb 02, 2018 4:27 pm
But it’s scary with the big drops today and last two days. Feels scary since my funds are new to the market
It does lend credence to Alan Greenspan's warning, though!

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by nisiprius » Fri Feb 02, 2018 6:33 pm

survivor wrote:
Thu Feb 01, 2018 3:01 pm
...I wonder if the Fed really controls long term interest rates...
It doesn't. The Fed controls an overnight rate. The long-term interest rates are set by the market.
I wonder what would happen if we had a spike in inflation.
If we had a spike in inflation, let's say such as the 18.2% that occurred in 1946, the purchasing power of bonds would be cut by 18.2% (gotta do that math correctly) -15.4%.

But so would the purchasing power of your "lowly CDs."

Well, in both cases the loss would be offset by whatever the bonds had earned, but in 1946 that was only 1% for bonds, so the effect was dominated by inflation.

As for stocks, stocks are so volatile that their movements can be large compared with inflation, and they are often described as hedging inflation... but in 1946, they actually lost -8.1%, and thus would have been worse than either bonds or bank accounts.
I am not sure we have ever seen a bond market bubble burst.
I am sure that we have, at least once, probably twice... if not more.

The unquestionable time was the "bond bubble of 1993" which was followed by the "bond massacre of 1994."

The second I even hate to mention because the actual effect on my bond fund was so small... but in August of 2010 Jeremy Siegel and Jeremy Schwartz warned about "the Great American Bond Bubble" and warned of "far more serious consequences" than the NASDAQ crash of 2000, specifying "If over the next year, 10-year interest rates, which are now 2.8%, rise to 3.15%, bondholders will suffer a capital loss equal to the current yield. If rates rise to 4% as they did last spring, the capital loss will be more than three times the current yield." Since rates actually rose to 3.71% I think we can say the conditions for the bubble bursting were met. However, Siegel and Schwartz complained later that the bubble had been "reinflated." Nevertheless, I think we did see the bubble burst, before it reinflated.

Just for a change I'll show the growth chart, not for Vanguard Total Bond, but for a couple of other bond funds: the Fidelity Investment-Grade Bond Fund, and the PIMCO Total Return fund. (Total Bond was similar). I suggest you try the same thing, using whatever bond fund you think is most interesting and relevant to you.

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HenrysPlan2
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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by HenrysPlan2 » Sat Feb 03, 2018 1:26 am

I am kind of considering selling, maybe it’s silly, but my funds are newly in the market for only 1-2 months. Scary time when they said interest rate goes up and bond yield rise then stock crash? Why is that? Isn’t stock hedge inflation? Could anyone explain why the market so panic?

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by willthrill81 » Sat Feb 03, 2018 1:33 am

HenrysPlan2 wrote:
Sat Feb 03, 2018 1:26 am
I am kind of considering selling, maybe it’s silly, but my funds are newly in the market for only 1-2 months. Scary time when they said interest rate goes up and bond yield rise then stock crash? Why is that? Isn’t stock hedge inflation? Could anyone explain why the market so panic?
Frankly, if a 2% drop and some 'bad news' on CBNC is enough to get you so seemingly jittery, you probably have too much invested in stocks.

Whether your money has been in the market for 2 months or 20 years doesn't matter at all; the amount of money currently in does. There's no such thing as the 'house's money'. Gains are always real, and so are losses.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by Noobvestor » Sat Feb 03, 2018 1:41 am

Nis covered things well, but a few more thoughts:
survivor wrote:
Thu Feb 01, 2018 3:01 pm
I wonder if the Fed really controls long term interest rates.
Even if they did (they don't), why would you care if you were holding a normal (short or intermediate duration) bond fund like most investors?
survivor wrote:
Thu Feb 01, 2018 3:01 pm
I wonder what would happen if we had a spike in inflation.
Good old Series I savings bonds and TIPS would be a good answer - they make up about half my bond portfolio.
survivor wrote:
Thu Feb 01, 2018 3:01 pm
I wonder what would happen if millions of investors ( Bogleheads excluded) decided to sell bonds.
I'd probably see it as a 'buy' opportunity. But if people really lose faith in US Treasuries, I'd be more worried about things outside my portfolio.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by unclescrooge » Sat Feb 03, 2018 1:43 am

JBTX wrote:
Wed Jan 31, 2018 8:12 pm
willthrill81 wrote:
Wed Jan 31, 2018 6:02 pm
alwayshedge wrote:
Wed Jan 31, 2018 5:59 pm
Rysto wrote:
Wed Jan 31, 2018 5:32 pm
ISTR that the last time that Alan Greenspan publicly predicted a bubble, the market went straight up for the next 4 years. It's funny, a lot of people seem to recall his "irrational exuberance" phrase, but nobody seems to remember that he said it in 1996.

Edit: My point being that these types of predictions are extremely difficult to make accurately. Ignore the noise and stay the course. If you stay in and he's right, the market will bounce back eventually. If you sell and he's wrong, that's a lot harder to recover from.
These kind of statements scare me more so than the bubble talk. What if....the market doesn't bounce back after a prolonged bear market?
Then it won't matter what you do because it will likely mean that the world economy has more or less 'permanently' tanked. The only things you'll want then are beans, bandages, gold, brass, and lead.
Totally disagree. Look at Japan. Market has tanked for 30 years but people otherwise live fairly normally.

I’m not saying that is likely. But to dismiss it as the end of the world is simplistic. I think you have said, and I agree, that international diversification can lessen the blow of such a scenario.

There is no comparison.

The PE ratio of the Nikkei in 1989 was 225. The S&P500 is currently at 22.5.

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by HenrysPlan2 » Sat Feb 03, 2018 1:49 am

willthrill81 wrote:
Sat Feb 03, 2018 1:33 am
HenrysPlan2 wrote:
Sat Feb 03, 2018 1:26 am
I am kind of considering selling, maybe it’s silly, but my funds are newly in the market for only 1-2 months. Scary time when they said interest rate goes up and bond yield rise then stock crash? Why is that? Isn’t stock hedge inflation? Could anyone explain why the market so panic?
Frankly, if a 2% drop and some 'bad news' on CBNC is enough to get you so seemingly jittery, you probably have too much invested in stocks.

Whether your money has been in the market for 2 months or 20 years doesn't matter at all; the amount of money currently in does. There's no such thing as the 'house's money'. Gains are always real, and so are losses.
Yes I am all in 100% stock with 95% of my asset, feeling very stressful

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by willthrill81 » Sat Feb 03, 2018 2:01 am

HenrysPlan2 wrote:
Sat Feb 03, 2018 1:49 am
willthrill81 wrote:
Sat Feb 03, 2018 1:33 am
HenrysPlan2 wrote:
Sat Feb 03, 2018 1:26 am
I am kind of considering selling, maybe it’s silly, but my funds are newly in the market for only 1-2 months. Scary time when they said interest rate goes up and bond yield rise then stock crash? Why is that? Isn’t stock hedge inflation? Could anyone explain why the market so panic?
Frankly, if a 2% drop and some 'bad news' on CBNC is enough to get you so seemingly jittery, you probably have too much invested in stocks.

Whether your money has been in the market for 2 months or 20 years doesn't matter at all; the amount of money currently in does. There's no such thing as the 'house's money'. Gains are always real, and so are losses.
Yes I am all in 100% stock with 95% of my asset, feeling very stressful
Then I would humbly suggest that you reconsider your strategy. What if stocks were down 10% or 30%? Would you be able to sleep at night? Would you be able to stick with your strategy? If not, then now is the time to determine how to prepare for it, because sooner or later, those kinds of events will happen in the market.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by WanderingDoc » Sat Feb 03, 2018 2:42 am

visualguy wrote:
Wed Jan 31, 2018 4:16 pm
Houe wrote:
Wed Jan 31, 2018 3:54 pm
So the question for you is are you concerned with bonds? Or moving to CDs or some other type of fixed income investment? Have you changed your bond allocation. Where are you putting your non stock portion of your portfolio?
I'm concerned about bond funds ("rewardless risk"). I moved mostly to CD ladders in 2016 already, but still have some muni bond funds which I'm thinking about selling. That's the only difficult decision because of the tax angle.
Could you share how you handled the CD ladder? ty
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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by StormShadow » Sat Feb 03, 2018 4:11 am

Not as much of a bubble as Bitcoin.

So there's risk in stocks, bonds and every other investment. Shocker.

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by Rowan Oak » Sat Feb 03, 2018 9:38 am

willthrill81 wrote:
Sat Feb 03, 2018 1:33 am
HenrysPlan2 wrote:
Sat Feb 03, 2018 1:26 am
I am kind of considering selling, maybe it’s silly, but my funds are newly in the market for only 1-2 months. Scary time when they said interest rate goes up and bond yield rise then stock crash? Why is that? Isn’t stock hedge inflation? Could anyone explain why the market so panic?
Frankly, if a 2% drop and some 'bad news' on CBNC is enough to get you so seemingly jittery, you probably have too much invested in stocks.

Whether your money has been in the market for 2 months or 20 years doesn't matter at all; the amount of money currently in does. There's no such thing as the 'house's money'. Gains are always real, and so are losses.
Agreed. The "house's money" rationalization is folly especially if you are a long-term investor. Stay-the-course.
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by Valuethinker » Sat Feb 03, 2018 9:43 am

willthrill81 wrote:
Sat Feb 03, 2018 2:01 am
HenrysPlan2 wrote:
Sat Feb 03, 2018 1:49 am
willthrill81 wrote:
Sat Feb 03, 2018 1:33 am
HenrysPlan2 wrote:
Sat Feb 03, 2018 1:26 am
I am kind of considering selling, maybe it’s silly, but my funds are newly in the market for only 1-2 months. Scary time when they said interest rate goes up and bond yield rise then stock crash? Why is that? Isn’t stock hedge inflation? Could anyone explain why the market so panic?
Frankly, if a 2% drop and some 'bad news' on CBNC is enough to get you so seemingly jittery, you probably have too much invested in stocks.

Whether your money has been in the market for 2 months or 20 years doesn't matter at all; the amount of money currently in does. There's no such thing as the 'house's money'. Gains are always real, and so are losses.
Yes I am all in 100% stock with 95% of my asset, feeling very stressful
Then I would humbly suggest that you reconsider your strategy. What if stocks were down 10% or 30%? Would you be able to sleep at night? Would you be able to stick with your strategy? If not, then now is the time to determine how to prepare for it, because sooner or later, those kinds of events will happen in the market.
I have come to the view people have to experience a bear market and what it does to their net wealth to understand that point.

After such a long and continuous bull market, there are a lot of people who really have never experienced a bear market.

You are, thus, preaching to people who do not even understand the language which you are speaking. They just cannot imagine what happens when markets go for one of their slalom runs.

Also 2008-09 was anomalous. The fall was vertiginous, the recovery was very quick (in marked contrast to the condition of the world economy as a whole).

That again teaches a dangerous lesson "just keep buying".

I think, probably, we would have had to live through the 1968-1980 period, and particularly the early mid 70s in the US market, to understand what a bear market can really feel like (UK market fell by c. 90% in 1972-74, 80 something per cent total return basis).

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by JBTX » Sat Feb 03, 2018 3:14 pm

unclescrooge wrote:
Sat Feb 03, 2018 1:43 am
JBTX wrote:
Wed Jan 31, 2018 8:12 pm
willthrill81 wrote:
Wed Jan 31, 2018 6:02 pm
alwayshedge wrote:
Wed Jan 31, 2018 5:59 pm
Rysto wrote:
Wed Jan 31, 2018 5:32 pm
ISTR that the last time that Alan Greenspan publicly predicted a bubble, the market went straight up for the next 4 years. It's funny, a lot of people seem to recall his "irrational exuberance" phrase, but nobody seems to remember that he said it in 1996.

Edit: My point being that these types of predictions are extremely difficult to make accurately. Ignore the noise and stay the course. If you stay in and he's right, the market will bounce back eventually. If you sell and he's wrong, that's a lot harder to recover from.
These kind of statements scare me more so than the bubble talk. What if....the market doesn't bounce back after a prolonged bear market?
Then it won't matter what you do because it will likely mean that the world economy has more or less 'permanently' tanked. The only things you'll want then are beans, bandages, gold, brass, and lead.
Totally disagree. Look at Japan. Market has tanked for 30 years but people otherwise live fairly normally.

I’m not saying that is likely. But to dismiss it as the end of the world is simplistic. I think you have said, and I agree, that international diversification can lessen the blow of such a scenario.

There is no comparison.

The PE ratio of the Nikkei in 1989 was 225. The S&P500 is currently at 22.5.
You completely missed my point. Will thrill seemed to indicate that if the US market tanks for a protracted period nothing else matters because we have entered the Zombie apocalypse. I’m saying a major market in a bubble can tank long term and the rest of the world chug forward.

Also i think you may be confusing the “Nikkei 225” which is the number of stocks not the PE. Shiller PE topped out around 80 I think.

http://siblisresearch.com/data/japan-shiller-pe-cape/

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by willthrill81 » Sat Feb 03, 2018 3:24 pm

Valuethinker wrote:
Sat Feb 03, 2018 9:43 am
willthrill81 wrote:
Sat Feb 03, 2018 2:01 am
Then I would humbly suggest that you reconsider your strategy. What if stocks were down 10% or 30%? Would you be able to sleep at night? Would you be able to stick with your strategy? If not, then now is the time to determine how to prepare for it, because sooner or later, those kinds of events will happen in the market.
I have come to the view people have to experience a bear market and what it does to their net wealth to understand that point.
That may well be true. But those invested in stocks in any allocation still need to understand how truly volatile they are. The last 9 years may have lulled some into thinking that the S&P 500 isn't risky. Those who are getting anxious about a 2% drop need to reassess their need, willingness, and ability to take on the risk of equities.

If it's possible for them to conduct this assessment before a 30% or larger correction hits them, then they should. Not all will, but some might.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by nisiprius » Sat Feb 03, 2018 3:41 pm

Valuethinker wrote:
Sat Feb 03, 2018 9:43 am
...Also 2008-09 was anomalous. The fall was vertiginous, the recovery was very quick (in marked contrast to the condition of the world economy as a whole)...
Indeed. It is hard to remember that in what is now seen as the start of a nine-year continuous, uninterrupted bull market, there was a great deal of talk about whether we would have "a V-shaped recovery or an L-shaped recovery" and I think the general consensus was that it would be L-shaped. Someone in Europe made some comment about "staring to see green shoots" and at the time was scorned for his optimism.

Furthermore, while people falsely remember it now as a quick bounce back and continuous smooth climb, in reality, especially during the first four years, there was constant talk about the rise being a "dead cat bounce" and a "value trap" and so forth, and there were many moments when people suspect the recovery was over, probably at all the places I've marked. The last of them, in 2011, definitely caused major jitters. That was the time when behavioral economist Cass Sunstein has admitted to personally panic-selling, and the time of the first post in the Bogleheads' long-running thread, U.S. stocks in freefall. We remember the green smudge, but we experienced the ragged up-and-down blue line. The only reason those little and not-so-little (the one in 2011 was -20%) jobs don't look alarming now is that we know what followed them.

There were many times when people thought the bull market was over. Every one of them was accompanied by some people handwringing about CAPE and some insisting that there was no cause for alarm. This one isn't qualitatively or quantitatively different from the rest... nor is it different from the one that occurred a little bit before 2008. This might be the start of a crash, and it might not.

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D]Source[/url]

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MindBogler
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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by MindBogler » Sat Feb 03, 2018 4:10 pm

nisiprius wrote:
Sat Feb 03, 2018 3:41 pm
Furthermore, while people falsely remember it now as a quick bounce back and continuous smooth climb, in reality, especially during the first four years, there was constant talk about the rise being a "dead cat bounce" and a "value trap" and so forth, and there were many moments when people suspect the recovery was over, probably at all the places I've marked. The last of them, in 2011, definitely caused major jitters.
A very good post. I suggest people go back and read through posts during these periods. It will be clear that many people were terrified, still quite obviously scarred from the realities of 2008. In 2011 some people on this forum were panic selling! The run up from March 2009 until now only seems so obvious in hindsight. And yet today everyone appears with so much conviction, voices confidently trumpeting "stay the course" which isn't too difficult some 9 years into a bull market. When the tide inevitably turns, we'll see the thin veneer of confidence peeled back again to reveal that people often don't practice what they preach.
willthrill81 wrote:
Sat Feb 03, 2018 3:24 pm
Those who are getting anxious about a 2% drop need to reassess their need, willingness, and ability to take on the risk of equities.
Anyone anxious about a 2% drop probably has no business being invested in stocks in the first place. Entirely too much emotion to stay the course.

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by HenrysPlan2 » Sun Feb 04, 2018 12:11 am

But what happens if the interest rate increase?

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by Ki_poorrichard » Sun Feb 04, 2018 2:04 am

I know you heard this— “Don’t fight the tape and don’t fight the Fed.” — Marty Zweig
"It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so." - Mark Twain

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by nedsaid » Sun Feb 04, 2018 2:25 am

Clearly, there was a lot of money sloshing around in the aftermath of the 2008-2009 financial crisis, bear market, and Great Recession. The monetary spigots were turned on full blast to avoid a second Great Depression. It shouldn't be surprising that the values of many asset classes have been pushed up by all that money creation. Stocks and bonds both look expensive but I wouldn't say we are in a bubble. For one thing, there is no euphoria out there particularly after the 600 point drop in the Dow on Friday. Ironically, commodities peaked just before the financial crisis, fell hard, and have not yet recovered. Though financial assets recovered their value, worker paychecks have only recently fully recovered. This doesn't have the feel of the roaring 20's, the go-go 60's, or the high tech and internet mania of the 90's.
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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by nisiprius » Sun Feb 04, 2018 7:42 am

HenrysPlan2 wrote:
Sun Feb 04, 2018 12:11 am
But what happens if the interest rate increase?
If? If? What "if?" They've already increased. During the last two years, the ten-year rate has increased from about 1.5% to almost 3%. That isn't trivial, in fact it's one of the things that has spooked the market. But not because of bonds so much as long-term guesses about what it means for the economy as a whole... I think.

What has happened already?

Top chart: interest rates.

Bottom chart: total value of a growing holding in the Vanguard Total Bond Market Index Fund (VBMFX, blue). I've sort of cheated a bit by also including a stock fund, (orange) so that we aren't looking at microscopic changes in the bond fund on a highly magnified scale. By some standards, this has been a terrible two years for a bond fund. After all, a grand total of only 2.63% total growth (from $10,000 to $10,263) in two years is nothing to write home about.

I have a lot of my portfolio in Total Bond. From the point of view of ego, what other choices I could have made, maybe it was a "bad" choice or a "dumb" choice. Why should I settle for such a paltry return when I could have gotten... well, less actually... in a bank account or a band CD? But despite the interest rate increase, it did make money. Eh. Not too bad. Nothing to make me jump out of the window. This isn't bitcoin we're talking about.

If interest rates keep rising we might be in for a period of time where a Total Bond holding stays almost flat and loses a little every year to inflation. Or not, since interest rate forecasts have always been grotesquely unreliable. There's nothing here to scare a bond fund holder into making any big, sudden, dramatic moves. Of course, if someone wants you to sell your bonds so that you can get the money to what they're selling, they might have an reason to want to scare you.

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by HenrysPlan2 » Sun Feb 04, 2018 9:40 pm

Looks like Asian market keep dropping. I am pulling the trigger selling all the 401k fund and buying safe US treasury. Might leave the taxable for a few days first

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by zeugmite » Sun Feb 04, 2018 10:02 pm

nisiprius wrote:
Sun Feb 04, 2018 7:42 am
If interest rates keep rising we might be in for a period of time where a Total Bond holding stays almost flat and loses a little every year to inflation. Or not, since interest rate forecasts have always been grotesquely unreliable. There's nothing here to scare a bond fund holder into making any big, sudden, dramatic moves. Of course, if someone wants you to sell your bonds so that you can get the money to what they're selling, they might have an reason to want to scare you.
While I agree with you in principle, especially the part that bond funds won't "lose" much nominal value if held to duration, I think this is being a bit sanguine for my taste. One has to consider where the "extra return" the last few years came from in bond funds. With yields that averaged 1-2% on intermediate-to-long bonds until recently, that should have been the return you accepted, yet the total return had been much better due to the hand of non-market forces. You've already won the gamble. Here you have a chance to get the heck out before your 1-2% becomes long-term realized returns. It's the same situation as people were in where they should have gotten a mortgage and be the borrower and not the lender. Unless rates don't fully normalize and we are going back to a depression, why not take 'yes' for an answer?

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by dickyboy » Mon Feb 05, 2018 3:05 pm

Greatness wrote:
Wed Jan 31, 2018 3:57 pm
I think he has dementia. I wouldn't listen to a word this person says. He caused the original case of "irrational exuberance". He's just blowing his own horn for his ego @ 91.
Mr. Greenspan is starting to look much smarter these last few days isn't he ????? Perhaps he's not the one with dementia !!!

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by Houe » Mon Feb 05, 2018 3:07 pm

dickyboy wrote:
Mon Feb 05, 2018 3:05 pm
Greatness wrote:
Wed Jan 31, 2018 3:57 pm
I think he has dementia. I wouldn't listen to a word this person says. He caused the original case of "irrational exuberance". He's just blowing his own horn for his ego @ 91.
Mr. Greenspan is starting to look much smarter these last few days isn't he ????? Perhaps he's not the one with dementia !!!
Indeed he is.

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Re: Alan Greenspan says there are bubbles in both stocks and bonds

Post by willthrill81 » Mon Feb 05, 2018 4:43 pm

dickyboy wrote:
Mon Feb 05, 2018 3:05 pm
Greatness wrote:
Wed Jan 31, 2018 3:57 pm
I think he has dementia. I wouldn't listen to a word this person says. He caused the original case of "irrational exuberance". He's just blowing his own horn for his ego @ 91.
Mr. Greenspan is starting to look much smarter these last few days isn't he ????? Perhaps he's not the one with dementia !!!
Nobody can consistently predict the market that well.

Many have been decrying this bull market for the last nine years. Remember that the dead watch is accurate twice a day.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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