"Is this time different?"

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space needle
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"Is this time different?"

Post by space needle »

One of the basic tenets of Bogleheads is to "stay the course", to establish an IPS, determine an AA, and "tune out the noise" which would otherwise distract from "staying the course".

Those straying from this principle are often derided as "market timers", or "reacting to noise", instead of sticking to the tried and true belief in the long-term benefits of sticking to a plan, regardless of what is happening in the economy, the market, or society at large.

Implicit in this criticism is that "this time is not different"; then the critic references the Great Depression, the dotcom meltdown, and the 2008 financial crisis - each of which were followed by market recoveries, though some taking longer than others.

I am currently invested long-term, and follow the basic Boglehead philosophy (my current AA is: 40 equity; 30 bonds; 30 cash, age 64). I have followed all of the Boglehead principles about saving, reducing debt, living simply, investing long-term, etc. But one principle I cannot accept is that it is wrong to ask if "this time is different" - sometimes in this forum the very notion is treated as heresy. And heresy, of course, is a religious concept, one based on faith rather than reason.

Current economic and financial conditions do seem "different", "unique", and potentially catastrophic. I think it would be unwise simply to treat reality as "noise" and to proceed as if nothing is happening. Massive unemployment globally, massive intervention by the US Fed and Treasury, massive over-valuing of equities coupled with historically low FI yields. If all of this is noise, it takes quite of bit of noise-cancelling to ignore it.

I came across this interview with Jeremy Grantham, the founder of asset management firm GMO: https://www.marketwatch.com/story/stock ... 2020-06-17

I then reviewed the firm's website: www.gmo.com

Essentially, Grantham believes uncertainty has never been higher, we are in an historic bubble, and his recommended percentage of US equities in a portfolio is 0. For those interested, I would recommend Grantham's Executive Summary on the GMO website.

The issue for me is what an individual can or should do when contemplating the magnitude of what Grantham is articulating. Some of the financial tools his firm uses are not available to an individual investor with less than $5 mm or in some cases $25 mm to invest. And much of what the firm does is for institutional investors.

So far, I have not made any changes in my AA, other than re-balancing, but I share Grantham's view that we are living in a period of unprecedented complexity and uncertainty, which presents almost insurmountable challenges, particularly to the individual investor with less than $5 mm.

So my question to this forum: "is this time different?". If so, how, and what can or will you do with your portfolio in response?

If this time is not different - that is, if contemporary challenges are within the range of what we've experienced before, and "recovery" to some sort of familiar norm is likely, why do you think this?
Enjoy what Mother Nature has given you before Father Time takes it away.
csmath
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Re: "Is this time different?"

Post by csmath »

I think "this time is different" is wrong because it is usually used to imply that the proper course of action this time is different than in the other cases, and we can determine what that course is.

Two points:
  • The reason why this is NOT different is that ALL of them are different in some way. That is something they have in common, the fact that they are all caused by a different mix of variables.
  • Another reason why this is NOT different, is that ALL of them place the investor in a situation where they don't know the best course of action. That is another thing they have in common, the fact that the "right thing to do this time" is unknown.
In other words, yes this time is different, just like all the other times when it was different. Of course no one knows what different actions should be taken this time. Sure lots of people say they do, and believe they do, but most will be wrong and some will be right. The ones that were right are likely 99%+ lucky but will for years talk about how obvious it was until they are very, very wrong the next time. Then they fade away and new "people who called it right" emerge.

This time is not different because history still says that market movement is mostly unpredictable and that continuing to buy and hold a diverse portfolio returns market gains, not much more, not much less.
livesoft
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Re: "Is this time different?"

Post by livesoft »

I don't know if this time is different and I sort of don't even care. The main reason is that everyone else will be likely be much worse off than me. I learned over the past couple of months that I can reduce my spending to just food and really low utility bills. Sure, I have property taxes and also pay for health insurance, but I could probably stop paying those and still keep my house and get health care because it would take forever for the local government to kick me out of my house.

Your post made me think of the term "antifragile" which I first learned about on this forum from VictoriaF and her posts about it. I think I'm there and thus have a very relaxed outlook about life, investing, and whatever.
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pcsrini
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Re: "Is this time different?"

Post by pcsrini »

Not that I would do anything different from an asset allocation perspective, as the consequences in a downturn for the different asset classes are probably going to be correlated. I do however think the reduction in friction due to technology changes with easy and no cost online trading (it's easier to pull the trigger), coupled with zero interest rates are helping the rise in the market. I don't know if this is a permanent new paradigm shift for investors, and if this is the new normal. When online trading became popular in the late 1990's, and day trading took off, there was a rapid increase in the market. In March, when the market dropped rapidly, I do think the ease for selling ETF's and stocks played a role. I would think future downturns/melt-ups when they happen would also be sharp and at high speed.

I have also read super successful investors in the past few weeks, remark that they have been humbled by the rise in the market since March. Maybe the retail investor has indeed learned their lessons from previous downturns, and are staying the course and rebalancing opportunistically. It will be interesting to see how all this plays out.
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nisiprius
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Re: "Is this time different?"

Post by nisiprius »

1) "Is this time different?" I don't know.

2) "Are you going to do anything different?" No.

3) "Jeremy Grantham says..."

a) Well, he's usually pessimistic. One article identifies him as "one of Wall Street's most notable and outspoken bears." What would be "different" would be for him to be optimistic.

b) And Jeremy Siegel says
We’ve seen the lows in March and we will never see those lows again.... I think 2021 could be a boom year,” he told the business channel. “With the liquidity that the Fed is adding — unprecedented — it could be a really good year.
So what else is new?

Tune out the noise. Sound bites from assorted gurus tell you nothing useful. I learned a long time ago that I process them selectively--the ones I notice are the ones that tell me what I want to hear.

Here's how the GMO US Equity mutual fund has performed compared to the Vanguard 500 Index Fund:

Source

Image

The good news is that in 35 years, either fund would have multiplied your investment more than thirty-fold.

You can interpret this chart a number of ways, but after beating the S&P for about the first half of its life, it then underperformed it for about the second half. If two investors had each put $10,000 into each fund on the day of GMUEX's inception, at the end of it all the S&P 500 investor (orange) would actually be very slightly ahead of the GMO investor (blue).

I would estimate that Jeremy Grantham knows roughly a thousand times as much about investing as I do, but I don't see any evidence that that knowledge translates into much higher returns than I can get in an index fund.
Last edited by nisiprius on Thu Jun 18, 2020 6:37 pm, edited 1 time in total.
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Robot Monster
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Re: "Is this time different?"

Post by Robot Monster »

space needle wrote: Thu Jun 18, 2020 12:16 pm So my question to this forum: "is this time different?". If so, how, and what can or will you do with your portfolio in response?

If this time is not different - that is, if contemporary challenges are within the range of what we've experienced before, and "recovery" to some sort of familiar norm is likely, why do you think this?
What I've learned is that predictions are highly unreliable, we can't say what's going to happen next, we cannot say if this time is going to be different or not.

However...

I can adjust my risk allocation so that if things are different, if a worst case scenario does play out, I'll be okay.

Moreover, I want my portfolio to be able to withstand that which I don't expect. This basically means trimming down risk to only having as much as I need to meet my financial goals.
Last edited by Robot Monster on Thu Jun 18, 2020 1:28 pm, edited 1 time in total.
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Clever_Username
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Re: "Is this time different?"

Post by Clever_Username »

Any time anything out of the ordinary happens, the peddlers of panic write long articles about how this time it's different. And yet, each time, a very good strategy has been the same thing it was when things weren't different: stay the course.

There was another thread like this a few weeks ago and someone made a very good point: when in the past were things "normal" anyway?
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delamer
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Re: "Is this time different?"

Post by delamer »

I am assuming that you are in or near retirement? Because you didn’t say.

How many years of net expenses (total expenses minus Social Security/pensions) do you have in cash?

If it’s 5 to 10 years, then essentially you have 5 to 10 years to wait out the dislocations to the economy/market that are going on now and hopefully will be resolved over that period.

If you believe that these dislocations are permanent and the stock market/economy are permanently damaged, then get out of stocks and go to all cash. And maybe build a safe room and stockpile food.

Ultimately, either you have “faith” that the US and global economies will recover — during your lifetime — from the current problems or you don’t. I believe they will, and I am your age. And I know that our ability to pay our bills for many years will be unaffected by what the stock market/economy does.
Cousin Eddie
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Re: "Is this time different?"

Post by Cousin Eddie »

livesoft wrote: Thu Jun 18, 2020 12:52 pm I don't know if this time is different and I sort of don't even care. The main reason is that everyone else will be likely be much worse off than me. I learned over the past couple of months that I can reduce my spending to just food and really low utility bills. Sure, I have property taxes and also pay for health insurance, but I could probably stop paying those and still keep my house and get health care because it would take forever for the local government to kick me out of my house.

Your post made me think of the term "antifragile" which I first learned about on this forum from VictoriaF and her posts about it. I think I'm there and thus have a very relaxed outlook about life, investing, and whatever.
Same here! I can live on practically nothing and get along just fine. I think once you fully realize that you will be all right regardless what happens, stock market volatility just doesn't have the impact that it once did. I also suspect that 90% + of bogleheads are already at that point, but maybe some don't realize it yet.
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Re: "Is this time different?"

Post by livesoft »

delamer wrote: Thu Jun 18, 2020 1:29 pmHow many years of net expenses (total expenses minus Social Security/pensions) do you have in cash?
I basically never have any cash, so I would like to point out that rather than the above question, one could ask instead, "How many years of net expenses would you have if your portfolio dropped 50% (60%, 80%, 95%) in value? If your portfolio did drop a lot, then what would be your plan?"

Holding cash is not going to stop your equities and bonds from doing what they do.
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JBTX
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Re: "Is this time different?"

Post by JBTX »

space needle wrote: Thu Jun 18, 2020 12:16 pm One of the basic tenets of Bogleheads is to "stay the course", to establish an IPS, determine an AA, and "tune out the noise" which would otherwise distract from "staying the course".

Those straying from this principle are often derided as "market timers", or "reacting to noise", instead of sticking to the tried and true belief in the long-term benefits of sticking to a plan, regardless of what is happening in the economy, the market, or society at large.

Implicit in this criticism is that "this time is not different"; then the critic references the Great Depression, the dotcom meltdown, and the 2008 financial crisis - each of which were followed by market recoveries, though some taking longer than others.

I am currently invested long-term, and follow the basic Boglehead philosophy (my current AA is: 40 equity; 30 bonds; 30 cash, age 64). I have followed all of the Boglehead principles about saving, reducing debt, living simply, investing long-term, etc. But one principle I cannot accept is that it is wrong to ask if "this time is different" - sometimes in this forum the very notion is treated as heresy. And heresy, of course, is a religious concept, one based on faith rather than reason.

Current economic and financial conditions do seem "different", "unique", and potentially catastrophic. I think it would be unwise simply to treat reality as "noise" and to proceed as if nothing is happening. Massive unemployment globally, massive intervention by the US Fed and Treasury, massive over-valuing of equities coupled with historically low FI yields. If all of this is noise, it takes quite of bit of noise-cancelling to ignore it.

I came across this interview with Jeremy Grantham, the founder of asset management firm GMO: https://www.marketwatch.com/story/stock ... 2020-06-17

I then reviewed the firm's website: www.gmo.com

Essentially, Grantham believes uncertainty has never been higher, we are in an historic bubble, and his recommended percentage of US equities in a portfolio is 0. For those interested, I would recommend Grantham's Executive Summary on the GMO website.

The issue for me is what an individual can or should do when contemplating the magnitude of what Grantham is articulating. Some of the financial tools his firm uses are not available to an individual investor with less than $5 mm or in some cases $25 mm to invest. And much of what the firm does is for institutional investors.

So far, I have not made any changes in my AA, other than re-balancing, but I share Grantham's view that we are living in a period of unprecedented complexity and uncertainty, which presents almost insurmountable challenges, particularly to the individual investor with less than $5 mm.

So my question to this forum: "is this time different?". If so, how, and what can or will you do with your portfolio in response?

If this time is not different - that is, if contemporary challenges are within the range of what we've experienced before, and "recovery" to some sort of familiar norm is likely, why do you think this?
I read Grantham and pay attention to what he says. He is one of the few in that space that I really pay attention to. But I don't always follow his advice. His views inform and influence my actions but he is just one data point.

Over the long term, he has basically predicted in one form or other all of the major crashes. Japan, 2000, 2007. So when he says it is the real deal, I definitely pay attention. However in spite of predicting all of those things his returns lag over the very long term because he is often very early in his calls, sometimes years. Japan probably almost doubled again after he got out, before crashing a couple of years later. I think he got out of US in 1998, and missed a lot of upside before the crash.

Ironically the one time he did say things were different and didn't think an apparent bubble was a bubble was commodities before the financial crash. However they crashed and haven't recovered 12+ years later. He missed that one badly.

My gut feel is he is probably correct on the current situation. But I could also make a case he may not be. This time is probably different in some respects, but that could imply different things.

If you are 40% equity that is pretty conservative. If you follow any of his advice at all you would have some international and emerging markets in there. So your US exposure may only be 20-30 % of your portfolio.

I'm in my upper 50s and at around 60% equities, and may contemplate going to 55%. I can't see that I would ever be below 50%. I do have some international and emerging markets.
delamer
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Re: "Is this time different?"

Post by delamer »

livesoft wrote: Thu Jun 18, 2020 1:53 pm
delamer wrote: Thu Jun 18, 2020 1:29 pmHow many years of net expenses (total expenses minus Social Security/pensions) do you have in cash?
I basically never have any cash, so I would like to point out that rather than the above question, one could ask instead, "How many years of net expenses would you have if your portfolio dropped 50% (60%, 80%, 95%) in value? If your portfolio did drop a lot, then what would be your plan?"

Holding cash is not going to stop your equities and bonds from doing what they do.
Of course it isn’t. But it could prevent some posters from selling “low” and/or making poor long-term decisions based on short-term conditions.

A common post on the forum is a variation on “the stock market has been declining for 2 weeks, and I panicked and sold all my equities.” My contention is that by keeping several years of net expenses in cash, retirees and near-retirees are less likely to panic-sell because they know they still can pay their bills.
striker79
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Re: "Is this time different?"

Post by striker79 »

This time is different. The "crash" was very short lived and quickly recovered while all the circumstances and more have developed since the crash. Part of this is the fed stimulus and low interest rates, another part is largely due to you and me common investors continuing to buy into a poorly priced/very expensive stock market. If we have a major crash again (30%+), I would not be surprised. If we continually slowly creeping upwards, I wont be surprised. If we have double digit returns from here on out over the next year, I would be shocked. I dont consider this current market to be a good buying opportunity, I would rather spend my money or pay down debt before putting more money into the market. If I had money after that to burn, I would consider real estate....you should have a good amount of money in something safe like treasuries or fixed income , ready to put to use should we have another crash.
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space needle
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Re: "Is this time different?"

Post by space needle »

nisiprius wrote: Thu Jun 18, 2020 1:22 pm 1) "Is this time different?" I don't know.

2) "Are you going to do anything different?" No.

3) "Jeremy Grantham says..."

a) Well, he's usually pessimistic. One article identifies him as "one of Wall Street's most notable and outspoken bears." What would be "different" would be for him to be optimistic.

b) And Jeremy Siegel says
We’ve seen the lows in March and we will never see those lows again.... I think 2021 could be a boom year,” he told the business channel. “With the liquidity that the Fed is adding — unprecedented — it could be a really good year.
So what else is new?

Tune out the noise. Sound bites from assorted gurus tell you nothing useful. I learned a long time ago that I process them selectively--the ones I notice are the ones that tell me what I want to hear.

Here's how the GMO US Equity mutual fund has performed to the Vanguard 500 Index Fund:

Source

Image

The good news is that in 35 years, either fund would have multiplied your investment more than thirty-fold.

You can interpret this chart a number of ways, but after beating the S&P for about the first half of its life, it then underperformed it for about the second half. If two investors had each put $10,000 into each fund on the day of GMUEX's inception, at the end of it all the S&P 500 investor (orange) would actually be very slightly ahead of the GMO investor (blue).

I would estimate that Jeremy Grantham knows roughly a thousand times as much about investing as I do, but I don't see any evidence that that knowledge translates into much higher returns than I can get in an index fund.
Thank you - this was very helpful
Enjoy what Mother Nature has given you before Father Time takes it away.
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space needle
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Re: "Is this time different?"

Post by space needle »

JBTX wrote: Thu Jun 18, 2020 2:11 pm
space needle wrote: Thu Jun 18, 2020 12:16 pm One of the basic tenets of Bogleheads is to "stay the course", to establish an IPS, determine an AA, and "tune out the noise" which would otherwise distract from "staying the course".

Those straying from this principle are often derided as "market timers", or "reacting to noise", instead of sticking to the tried and true belief in the long-term benefits of sticking to a plan, regardless of what is happening in the economy, the market, or society at large.

Implicit in this criticism is that "this time is not different"; then the critic references the Great Depression, the dotcom meltdown, and the 2008 financial crisis - each of which were followed by market recoveries, though some taking longer than others.

I am currently invested long-term, and follow the basic Boglehead philosophy (my current AA is: 40 equity; 30 bonds; 30 cash, age 64). I have followed all of the Boglehead principles about saving, reducing debt, living simply, investing long-term, etc. But one principle I cannot accept is that it is wrong to ask if "this time is different" - sometimes in this forum the very notion is treated as heresy. And heresy, of course, is a religious concept, one based on faith rather than reason.

Current economic and financial conditions do seem "different", "unique", and potentially catastrophic. I think it would be unwise simply to treat reality as "noise" and to proceed as if nothing is happening. Massive unemployment globally, massive intervention by the US Fed and Treasury, massive over-valuing of equities coupled with historically low FI yields. If all of this is noise, it takes quite of bit of noise-cancelling to ignore it.

I came across this interview with Jeremy Grantham, the founder of asset management firm GMO: https://www.marketwatch.com/story/stock ... 2020-06-17

I then reviewed the firm's website: www.gmo.com

Essentially, Grantham believes uncertainty has never been higher, we are in an historic bubble, and his recommended percentage of US equities in a portfolio is 0. For those interested, I would recommend Grantham's Executive Summary on the GMO website.

The issue for me is what an individual can or should do when contemplating the magnitude of what Grantham is articulating. Some of the financial tools his firm uses are not available to an individual investor with less than $5 mm or in some cases $25 mm to invest. And much of what the firm does is for institutional investors.

So far, I have not made any changes in my AA, other than re-balancing, but I share Grantham's view that we are living in a period of unprecedented complexity and uncertainty, which presents almost insurmountable challenges, particularly to the individual investor with less than $5 mm.

So my question to this forum: "is this time different?". If so, how, and what can or will you do with your portfolio in response?

If this time is not different - that is, if contemporary challenges are within the range of what we've experienced before, and "recovery" to some sort of familiar norm is likely, why do you think this?
I read Grantham and pay attention to what he says. He is one of the few in that space that I really pay attention to. But I don't always follow his advice. His views inform and influence my actions but he is just one data point.

Over the long term, he has basically predicted in one form or other all of the major crashes. Japan, 2000, 2007. So when he says it is the real deal, I definitely pay attention. However in spite of predicting all of those things his returns lag over the very long term because he is often very early in his calls, sometimes years. Japan probably almost doubled again after he got out, before crashing a couple of years later. I think he got out of US in 1998, and missed a lot of upside before the crash.

Ironically the one time he did say things were different and didn't think an apparent bubble was a bubble was commodities before the financial crash. However they crashed and haven't recovered 12+ years later. He missed that one badly.

My gut feel is he is probably correct on the current situation. But I could also make a case he may not be. This time is probably different in some respects, but that could imply different things.

If you are 40% equity that is pretty conservative. If you follow any of his advice at all you would have some international and emerging markets in there. So your US exposure may only be 20-30 % of your portfolio.

I'm in my upper 50s and at around 60% equities, and may contemplate going to 55%. I can't see that I would ever be below 50%. I do have some international and emerging markets.
Thank you - I appreciate your perspective.
Enjoy what Mother Nature has given you before Father Time takes it away.
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HomerJ
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Re: "Is this time different?"

Post by HomerJ »

space needle wrote: Thu Jun 18, 2020 12:16 pm One of the basic tenets of Bogleheads is to "stay the course", to establish an IPS, determine an AA, and "tune out the noise" which would otherwise distract from "staying the course".

Those straying from this principle are often derided as "market timers", or "reacting to noise", instead of sticking to the tried and true belief in the long-term benefits of sticking to a plan, regardless of what is happening in the economy, the market, or society at large.

Implicit in this criticism is that "this time is not different"; then the critic references the Great Depression, the dotcom meltdown, and the 2008 financial crisis - each of which were followed by market recoveries, though some taking longer than others.

I am currently invested long-term, and follow the basic Boglehead philosophy (my current AA is: 40 equity; 30 bonds; 30 cash, age 64). I have followed all of the Boglehead principles about saving, reducing debt, living simply, investing long-term, etc. But one principle I cannot accept is that it is wrong to ask if "this time is different" - sometimes in this forum the very notion is treated as heresy. And heresy, of course, is a religious concept, one based on faith rather than reason.

Current economic and financial conditions do seem "different", "unique", and potentially catastrophic. I think it would be unwise simply to treat reality as "noise" and to proceed as if nothing is happening. Massive unemployment globally, massive intervention by the US Fed and Treasury, massive over-valuing of equities coupled with historically low FI yields. If all of this is noise, it takes quite of bit of noise-cancelling to ignore it.
Investing is long-term... Do you see this pandemic causing 20-year employment issues?
I came across this interview with Jeremy Grantham, the founder of asset management firm GMO:
Okay, never ever ever read anything by Grantham. He has been calling for a crash for the past 20 years. He is ALWAYS predicting a crash.

He cannot be taken seriously anymore. No matter what he writes, no matter how logical it sounds, he has proven over and over and over and over and over that he cannot predict the future (none of us can, but he keeps telling people he can predict the future, and he continually is wrong - yet he keeps telling people he can predict the future - he is either a liar or a fool).
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
UpperNwGuy
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Re: "Is this time different?"

Post by UpperNwGuy »

There's a search box in the upper right hand corner of this page. If you type in "Jeremy Grantham" and hit enter, back will come a multitude of prior boglehead threads about Jeremy Grantham. The common theme seems to be his pessimistic outlook on the market. OP has kicked off yet another of our Jeremy Grantham threads, and not much has changed.
livesoft
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Re: "Is this time different?"

Post by livesoft »

HomerJ wrote: Thu Jun 18, 2020 2:41 pmOkay, never ever ever read anything by Grantham. He has been calling for a crash for the past 20 years. He is ALWAYS predicting a crash.
This is why JBTX can also write:
JBTX wrote: Thu Jun 18, 2020 2:11 pmOver the long term, he has basically predicted in one form or other all of the major crashes. Japan, 2000, 2007. So when he says it is the real deal, I definitely pay attention.
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Third Son
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Re: "Is this time different?"

Post by Third Son »

Ah yes...our weekly "It's different this time thread". I think every time is different. That's what make this the same.
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Candor
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Re: "Is this time different?"

Post by Candor »

Grantham has been bearish on US markets for years. From a 2012 article:

"GMO co-founder Jeremy Grantham is known best for his bearish views on U.S. equities. At the Morningstar Investment Conference on Friday, he's upholding that reputation. Outside of the U.S., however, his views are much more bullish."

Grantham thinks US corporate earnings are "abnormally high," for two main reasons: He sees profit margins trending up as government debtincreases — "this is an artificial prop to the market" — and an overly bullish bias because being bearish is "bad for business."

"Think how weird profit margins are: We've got high unemployment and financial crises — and world record profit margins," said Grantham. "People think the American market is very cheap. We don't. The market quite incorrectly gives full credit to today's earnings.


https://www.cnbc.com/id/47873605

I think it is human nature to think "this time is different'.
Time is your friend, impulse is your enemy. - John C. Bogle
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HomerJ
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Re: "Is this time different?"

Post by HomerJ »

JBTX wrote: Thu Jun 18, 2020 2:11 pm I read Grantham and pay attention to what he says. He is one of the few in that space that I really pay attention to. But I don't always follow his advice. His views inform and influence my actions but he is just one data point.

Over the long term, he has basically predicted in one form or other all of the major crashes. Japan, 2000, 2007. So when he says it is the real deal, I definitely pay attention. However in spite of predicting all of those things his returns lag over the very long term because he is often very early in his calls, sometimes years. Japan probably almost doubled again after he got out, before crashing a couple of years later. I think he got out of US in 1998, and missed a lot of upside before the crash.

Ironically the one time he did say things were different and didn't think an apparent bubble was a bubble was commodities before the financial crash. However they crashed and haven't recovered 12+ years later. He missed that one badly.

My gut feel is he is probably correct on the current situation. But I could also make a case he may not be. This time is probably different in some respects, but that could imply different things.

If you are 40% equity that is pretty conservative. If you follow any of his advice at all you would have some international and emerging markets in there. So your US exposure may only be 20-30 % of your portfolio.

I'm in my upper 50s and at around 60% equities, and may contemplate going to 55%. I can't see that I would ever be below 50%. I do have some international and emerging markets.
Grantham gives terrible investing advice.

Here's an article from 2012

https://www.forbes.com/sites/schifrin/2 ... 14c8f77010
A few days ago I spoke with famed investor Jeremy Grantham of $99 billion (assets) Boston-based investment firm GMO LLC about what investor's should expect in 2013.

Nearly the first words out of his mouth were as follows : "I think next year will be a dangerous year. It is the first year of a presidential cycle. I have always paid close attention to it as a reliable indicator. It is the time when the Fed and the U.S. government typically try to get things more in order." Grantham continues: "History is quite clear. There has been, on average, no money made in year one and two after a Presidential election going back to 1932, after you adjust for inflation. All the money is made in year three with an adequate return in year four.
Stock market grew 30% in 2013. That's not just a little bit wrong.

Here's one from 2015

granthams-gmo-expects-lousy-returns-for-us-stocks-2015-12-10 - https://www.marketwatch.com/story/grant ... 2015-12-10

The market went up 14% in 2016 instead of crashing like he predicted.

He has been consistent calling for a crash for the past decade. At what point does he lose credibility?

Are you really going to give him credit if we finally do have a huge sustained crash? Are you actually going to say "He called it!! Well, a little early..."
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Re: "Is this time different?"

Post by Broken Man 1999 »

Suppose for a moment Grantham is correct, what would you do, OP?

Me, I could survive losing the 50% of my portfolio that equities represent. But I'm nearly 67.

What would those 50 and younger do?

What will get them to retirement?

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Re: "Is this time different?"

Post by firebirdparts »

space needle wrote: Thu Jun 18, 2020 12:16 pm
Current economic and financial conditions do seem "different", "unique", and potentially catastrophic.
This is where they get you. You're already at 40% equities and eligible for social security; I would say that's plenty safe enough.

I think it's odd, living through a pandemic with as many cases as this one. I've never been through anything like that myself. But catastrophic it's not. The bigger issue, to me, is in fact market timing. If you sell everything today, and wait a year, what have you go to lose? Not much. Let's be honest. Not much. I still don't do it, though.
Last edited by firebirdparts on Thu Jun 18, 2020 3:22 pm, edited 1 time in total.
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Re: "Is this time different?"

Post by bigskyguy »

I have the same basic sense that you seem to have. As a recent retiree, I have had time (finally) to read. A major focus of my reading has been the first half of the 20th century. Then, like now, there were multiple major disruptions (political, health, financial) that came down on the world like a ton of bricks. We are presently facing multiple sources of major disruptions in the status quo: a worldwide pandemic, active disruption of international economic relations, social (racial) unrest, extreme levels of economic inequality. The economic disruptions presently include extreme valuations of equities, fixed income, and gold, and major efforts by central banks to expand the monetary base that have no precedent. And all of these events are occurring in the context of a very contentious political environment. To think that this time is not different is ignoring the reality of our time.

Speaking of simply valuations, present equity valuations, with CAPE PE10 and PE greater than 2 standard deviations above the norm, with fixed income returns on safe assets zero in the US and negative in Europe, with gold at greater than 1600/ounce, I find it difficult to disagree with Grantham's thesis. For all intents and purposes, the FED, by opening the QE floodgates has forced inflation in the valuations of virtually all investment vehicles. It simply has not (yet) spilt over into the retail economy.

I for one find these to be very troubled times. I am not at all convinced that this will all end well. There are no safe havens. The Concord Coalition website has a nice article today on the FEDs actions, implying that the US has now de facto adopted Modern Monetary Theory. If so, then this time really is different.
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Re: "Is this time different?"

Post by simple man »

I really want to thank everyone who contributed to this post. Yes, every week someone worries "this time might be different." BUT, many of us very much appreciate you taking the time to remind us (with evidence and wisdom) that no one knows the future and we all need to stay the course. You could have easily gotten irritated and clicked on the next interesting post. But by stopping and, yet again, sharing your wisdom and experience, you have helped 1000's of families today. The financial anxiety industry is on overdrive right now, and lots of us get nervous. Thanks again for stopping to help! :sharebeer
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Re: "Is this time different?"

Post by reln »

space needle wrote: Thu Jun 18, 2020 12:16 pm One of the basic tenets of Bogleheads is to "stay the course", to establish an IPS, determine an AA, and "tune out the noise" which would otherwise distract from "staying the course".

Those straying from this principle are often derided as "market timers", or "reacting to noise", instead of sticking to the tried and true belief in the long-term benefits of sticking to a plan, regardless of what is happening in the economy, the market, or society at large.

Implicit in this criticism is that "this time is not different"; then the critic references the Great Depression, the dotcom meltdown, and the 2008 financial crisis - each of which were followed by market recoveries, though some taking longer than others.

I am currently invested long-term, and follow the basic Boglehead philosophy (my current AA is: 40 equity; 30 bonds; 30 cash, age 64). I have followed all of the Boglehead principles about saving, reducing debt, living simply, investing long-term, etc. But one principle I cannot accept is that it is wrong to ask if "this time is different" - sometimes in this forum the very notion is treated as heresy. And heresy, of course, is a religious concept, one based on faith rather than reason.

Current economic and financial conditions do seem "different", "unique", and potentially catastrophic. I think it would be unwise simply to treat reality as "noise" and to proceed as if nothing is happening. Massive unemployment globally, massive intervention by the US Fed and Treasury, massive over-valuing of equities coupled with historically low FI yields. If all of this is noise, it takes quite of bit of noise-cancelling to ignore it.

I came across this interview with Jeremy Grantham, the founder of asset management firm GMO: https://www.marketwatch.com/story/stock ... 2020-06-17

I then reviewed the firm's website: www.gmo.com

Essentially, Grantham believes uncertainty has never been higher, we are in an historic bubble, and his recommended percentage of US equities in a portfolio is 0. For those interested, I would recommend Grantham's Executive Summary on the GMO website.

The issue for me is what an individual can or should do when contemplating the magnitude of what Grantham is articulating. Some of the financial tools his firm uses are not available to an individual investor with less than $5 mm or in some cases $25 mm to invest. And much of what the firm does is for institutional investors.

So far, I have not made any changes in my AA, other than re-balancing, but I share Grantham's view that we are living in a period of unprecedented complexity and uncertainty, which presents almost insurmountable challenges, particularly to the individual investor with less than $5 mm.

So my question to this forum: "is this time different?". If so, how, and what can or will you do with your portfolio in response?

If this time is not different - that is, if contemporary challenges are within the range of what we've experienced before, and "recovery" to some sort of familiar norm is likely, why do you think this?
1. No.

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Re: "Is this time different?"

Post by Fallible »

It's most important to understand what Sir John Templeton meant about "This time is different." When I first began seeing the words on the forum and elsewhere in the financial world some years ago, I looked them up and was overwhelmed at first by the sheer number of writings. So, you can google for your personal pick; mine was this from book and blog author Ben Carlson ("A Wealth of Common Sense") because he wrote often about them and presented them from different points of view - and they basically jibed with other writings.

Here are links to 2017 and 2014 articles and quotes from each:

https://awealthofcommonsense.com/2017/0 ... different/
https://awealthofcommonsense.com/2014/0 ... fferent-2/

2017 article:
Templeton wasn’t talking about financial ratios or models when he stated that the four most dangerous words are “This time is different.” He was talking about human nature. That’s the one constant that remains in the markets.

One definition of insanity is doing the same thing again and again and expecting a different result. This is what Templeton was referring to with the four most costly words in the annals of investing.
2014 article led with these quotes:
“The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological.” – Howard Marks

In John Templeton’s timeless 16 rules for Investment Success (published in 1933) he states:
“The investor who says, ‘This time is different,’ when in fact it’s virtually a repeat of an earlier situation, has uttered among the four most costly words in the annals of investing.”
Edit 2 to add Barry Ritholtz article further explaining the meaning and impact of Templeton's words:

https://www.washingtonpost.com/business ... story.html
“The four most expensive words in investing are: ‘This time it’s different.’” So said Sir John Templeton, the legendary investor and mutual fund pioneer. The phrase contains tremendous wisdom, but only if you truly understand what it means.

Unfortunately, too many investors don’t. Lately, the gem seems to be misapplied and misunderstood. Investors need to understand when specific fundamental factors are different and put them into context.
Last edited by Fallible on Thu Jun 18, 2020 9:01 pm, edited 3 times in total.
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Re: "Is this time different?"

Post by yangtui »

livesoft wrote: Thu Jun 18, 2020 12:52 pm Your post made me think of the term "antifragile" which I first learned about on this forum from VictoriaF and her posts about it. I think I'm there and thus have a very relaxed outlook about life, investing, and whatever.
+1

I am also a big fan of stoicism. Being relaxed in life, investing, and whatever is incredibly important. Ryan Holiday and Taleb have both been very helpful in this department.
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Re: "Is this time different?"

Post by SmileyFace »

space needle wrote: Thu Jun 18, 2020 12:16 pm So my question to this forum: "is this time different?". If so, how, and what can or will you do with your portfolio in response?
No it is not. Stay the Course.
space needle wrote: Thu Jun 18, 2020 12:16 pm If this time is not different - that is, if contemporary challenges are within the range of what we've experienced before, and "recovery" to some sort of familiar norm is likely, why do you think this?
Because everything about this pandemic is temporary - it will run its course one way or another. We don't have "Massive Unemployment" as you state - the numbers are already getting better (the 30% - 40% in the US some predicted simply hasn't happened). Many that were unemployed were only temporarily furloughed and are returning to work. As bad as the pandemic is - we are overcoming it and those that predicted the most dire outcomes (millions they said would be dead in he US by now) have simply been wrong. Those that don't Stay the Course will learn some hard lessons (many already have since they sold on the initial panic and are kicking themselves). I am not saying we won't have a tough/volatile YEAR. But it is only a year. If you are a long time investor, no, this time is not different. It's all noise. I go out cautiously wearing my mask but I am still living and companies will continue to make money.
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Re: "Is this time different?"

Post by JBTX »

HomerJ wrote: Thu Jun 18, 2020 2:58 pm
JBTX wrote: Thu Jun 18, 2020 2:11 pm I read Grantham and pay attention to what he says. He is one of the few in that space that I really pay attention to. But I don't always follow his advice. His views inform and influence my actions but he is just one data point.

Over the long term, he has basically predicted in one form or other all of the major crashes. Japan, 2000, 2007. So when he says it is the real deal, I definitely pay attention. However in spite of predicting all of those things his returns lag over the very long term because he is often very early in his calls, sometimes years. Japan probably almost doubled again after he got out, before crashing a couple of years later. I think he got out of US in 1998, and missed a lot of upside before the crash.

Ironically the one time he did say things were different and didn't think an apparent bubble was a bubble was commodities before the financial crash. However they crashed and haven't recovered 12+ years later. He missed that one badly.

My gut feel is he is probably correct on the current situation. But I could also make a case he may not be. This time is probably different in some respects, but that could imply different things.

If you are 40% equity that is pretty conservative. If you follow any of his advice at all you would have some international and emerging markets in there. So your US exposure may only be 20-30 % of your portfolio.

I'm in my upper 50s and at around 60% equities, and may contemplate going to 55%. I can't see that I would ever be below 50%. I do have some international and emerging markets.
Grantham gives terrible investing advice.

Here's an article from 2012

https://www.forbes.com/sites/schifrin/2 ... 14c8f77010
A few days ago I spoke with famed investor Jeremy Grantham of $99 billion (assets) Boston-based investment firm GMO LLC about what investor's should expect in 2013.

Nearly the first words out of his mouth were as follows : "I think next year will be a dangerous year. It is the first year of a presidential cycle. I have always paid close attention to it as a reliable indicator. It is the time when the Fed and the U.S. government typically try to get things more in order." Grantham continues: "History is quite clear. There has been, on average, no money made in year one and two after a Presidential election going back to 1932, after you adjust for inflation. All the money is made in year three with an adequate return in year four.
Stock market grew 30% in 2013. That's not just a little bit wrong.

Here's one from 2015

granthams-gmo-expects-lousy-returns-for-us-stocks-2015-12-10 - https://www.marketwatch.com/story/grant ... 2015-12-10

The market went up 14% in 2016 instead of crashing like he predicted.

He has been consistent calling for a crash for the past decade. At what point does he lose credibility?

Are you really going to give him credit if we finally do have a huge sustained crash? Are you actually going to say "He called it!! Well, a little early..."
I think my post speaks for itself and nothing you said explicitly contradicts what I said.

If you had to find a single factor where he missed the most is the 30 year march to near zero interest rates, including worldwide central banks to inject massive liquidity that supported markets and PE expansions. It is hard to argue that interest rates can go much lower. PEs could expand however, and I give that as much of a probability near term/next couple of years.

But there are so many major macro factors going in the wrong direction that any one of them could throw us into a long tailspin, thus my gut feeling Grantham is right, whether that be in 2 weeks, 2 months or 2 years - or even longer.
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Re: "Is this time different?"

Post by JBTX »

DaftInvestor wrote: Thu Jun 18, 2020 4:02 pm
space needle wrote: Thu Jun 18, 2020 12:16 pm So my question to this forum: "is this time different?". If so, how, and what can or will you do with your portfolio in response?
No it is not. Stay the Course.
space needle wrote: Thu Jun 18, 2020 12:16 pm If this time is not different - that is, if contemporary challenges are within the range of what we've experienced before, and "recovery" to some sort of familiar norm is likely, why do you think this?
Because everything about this pandemic is temporary - it will run its course one way or another. We don't have "Massive Unemployment" as you state - the numbers are already getting better (the 30% - 40% in the US some predicted simply hasn't happened). Many that were unemployed were only temporarily furloughed and are returning to work. As bad as the pandemic is - we are overcoming it and those that predicted the most dire outcomes (millions they said would be dead in he US by now) have simply been wrong. Those that don't Stay the Course will learn some hard lessons (many already have since they sold on the initial panic and are kicking themselves). I am not saying we won't have a tough/volatile YEAR. But it is only a year. If you are a long time investor, no, this time is not different. It's all noise. I go out cautiously wearing my mask but I am still living and companies will continue to make money.
The additional trillions of debt and the greatly expanded Fed balance sheet arent temporary.

What may be temporary is the liquidity that the feds have injected into the system to prop things up. What is definitely temporary is the states ability to pay for the additional budget burdens. By law they can't run deficits, and they will have to have massive cuts unless the Feds bail them out, which seems unlikely any time soon.

What is also probably temporary is some company's and industry's ability to survive in an ongoing recession/depression level of economic output.

Finally, as the fall comes, schools open up in some form or fashion, temperatures cool,etc I'd be shocked if the Covid numbers don't head wrong direction.

But as always I could be (and hope) I'm wrong.
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Re: "Is this time different?"

Post by Normchad »

I don’t think it’s different this time. I never think it’s different. But I’ll take a shot at making my best argument for the opposing side.

Of course it’s different, this is the first pandemic we’ve had in over 100 years. So far, 118,000 Americans have died, and the toll keeps rising. People have become complacent, and it wouldn’t be surprising to see this last another year or more, and claim another 200,000 lives or more. Whether that happens or not, we just can’t say. But we do know that there is a lot of serious uncertainty.

Due to this, we currently have 40 million unemployed, and scores more are underemployed. We don’t know if or when that will come to an end. We do know that millions are hurting. We know that rents aren’t getting paid. We know that when millions of people can’t participate in the economy, that’s bad for everybody.

On top of this, the government has been supplying unforeseen levels of stimulus. Will this continue? Will this need to be doubled? Tripled? Quadrupled? As this drags on? Will the miraculous American economy continue to be the envy of the world now that we won’t allow poorly run business to fail? When the government picks winners and losers, and distorts the efficient allocation of capital to its highest uses, what does that mean? Again, the uncertainty is so high it’s difficult to price the risks.

That would be my argument if I thought it was different. But even with all of that, I still buying as per my never changing plan.
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Re: "Is this time different?"

Post by bck63 »

space needle wrote: Thu Jun 18, 2020 12:16 pm Implicit in this criticism is that "this time is not different"; then the critic references the Great Depression, the dotcom meltdown, and the 2008 financial crisis - each of which were followed by market recoveries, though some taking longer than others.
Actually, Jack Bogle used to say that it is always "different." He said that each major stock market and economic event is different; no two are ever the same.

I don't know enough about economics or history to know if he was right.
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Re: "Is this time different?"

Post by JBTX »

A "Tidal wave of bankruptcies" isn't something I'd regard as temporary or normal.

https://www.nytimes.com/2020/06/18/busi ... virus.html
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Re: "Is this time different?"

Post by nisiprius »

JBTX wrote: Thu Jun 18, 2020 6:32 pm A "Tidal wave of bankruptcies" isn't something I'd regard as temporary or normal.

https://www.nytimes.com/2020/06/18/busi ... virus.html
But, just to be clear, the article is still making a prediction. The tidal wave is, the article says, "coming." It hasn't happened yet. Unusually, though, we do have a clean, falsifiable prediction (i.e one with a time frame)
Robert J. Keach, a director of the American College of Bankruptcy, said many companies had so far managed to put off bankruptcy by amassing cash and conserving it as best they can: drawing down existing credit lines, furloughing workers, delaying projects and taking advantage of federal and state pandemic-relief programs.

But when those programs expire, the companies will start burning through their cash. That’s when bankruptcy filings are likely to soar and stay elevated, Mr. Keach said.

Expect “a Covid-19 cliff” in the next 30 to 60 days, he said.
And it won't take very long to find out if the prediction was accurate.

I'm sure many will recall Meredith Whitney's totally confident prediction, which a fair number of people took as being as good as true, on December 19th, 2010 that 50 to 100 counties, cities, and towns in the United States would have "significant" municipal bond defaults totaling "hundreds of billions" of dollars, and that "it'll be something to worry about within the next 12 months."
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Re: "Is this time different?"

Post by JBTX »

nisiprius wrote: Thu Jun 18, 2020 6:48 pm
JBTX wrote: Thu Jun 18, 2020 6:32 pm A "Tidal wave of bankruptcies" isn't something I'd regard as temporary or normal.

https://www.nytimes.com/2020/06/18/busi ... virus.html
But, just to be clear, the article is still making a prediction. The tidal wave is, the article says, "coming." It hasn't happened yet. Unusually, though, we do have a clean, falsifiable prediction (i.e one with a time frame)
Robert J. Keach, a director of the American College of Bankruptcy, said many companies had so far managed to put off bankruptcy by amassing cash and conserving it as best they can: drawing down existing credit lines, furloughing workers, delaying projects and taking advantage of federal and state pandemic-relief programs.

But when those programs expire, the companies will start burning through their cash. That’s when bankruptcy filings are likely to soar and stay elevated, Mr. Keach said.

Expect “a Covid-19 cliff” in the next 30 to 60 days, he said.
And it won't take very long to find out if the prediction was accurate.

I'm sure many will recall Meredith Whitney's totally confident prediction, which a fair number of people took as being as good as true, on December 19th, 2010 that 50 to 100 counties, cities, and towns in the United States would have "significant" municipal bond defaults totaling "hundreds of billions" of dollars, and that "it'll be something to worry about within the next 12 months."
OK it is a prediction. And yes it may be wrong. But I struggle with how we can continue to muddle along at less than full capacity, when we were already highly leveraged in the corporate sector even before this happened.

I do recall the dire predictions about municipals, and I believed them, and yes they were wrong. I suspect ARRA and fed reserve actions had something do do with that.

I am admittedly a glass half empty type person on macroeconomic issues and have been for decades. Luckily, for the most part, I firewall those opinions from my investment behavior and mostly "stay the course" outside of some tinkering on the fringes.
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Re: "Is this time different?"

Post by marcopolo »

JBTX wrote: Thu Jun 18, 2020 7:18 pm
nisiprius wrote: Thu Jun 18, 2020 6:48 pm
JBTX wrote: Thu Jun 18, 2020 6:32 pm A "Tidal wave of bankruptcies" isn't something I'd regard as temporary or normal.

https://www.nytimes.com/2020/06/18/busi ... virus.html
But, just to be clear, the article is still making a prediction. The tidal wave is, the article says, "coming." It hasn't happened yet. Unusually, though, we do have a clean, falsifiable prediction (i.e one with a time frame)
Robert J. Keach, a director of the American College of Bankruptcy, said many companies had so far managed to put off bankruptcy by amassing cash and conserving it as best they can: drawing down existing credit lines, furloughing workers, delaying projects and taking advantage of federal and state pandemic-relief programs.

But when those programs expire, the companies will start burning through their cash. That’s when bankruptcy filings are likely to soar and stay elevated, Mr. Keach said.

Expect “a Covid-19 cliff” in the next 30 to 60 days, he said.
And it won't take very long to find out if the prediction was accurate.

I'm sure many will recall Meredith Whitney's totally confident prediction, which a fair number of people took as being as good as true, on December 19th, 2010 that 50 to 100 counties, cities, and towns in the United States would have "significant" municipal bond defaults totaling "hundreds of billions" of dollars, and that "it'll be something to worry about within the next 12 months."
OK it is a prediction. And yes it may be wrong. But I struggle with how we can continue to muddle along at less than full capacity, when we were already highly leveraged in the corporate sector even before this happened.

I do recall the dire predictions about municipals, and I believed them, and yes they were wrong. I suspect ARRA and fed reserve actions had something do do with that.

I am admittedly a glass half empty type person on macroeconomic issues and have been for decades. Luckily, for the most part, I firewall those opinions from my investment behavior and mostly "stay the course" outside of some tinkering on the fringes.

You are performing a valuable service.
I like to see people continue to peddle doom and gloom.
It is what builds the "wall of worry" which markets love to climb.

It is when everyone throws in the towel and becomes Pollyanas about the market that i would start to worry about negative outcomes.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: "Is this time different?"

Post by SmileyFace »

marcopolo wrote: Thu Jun 18, 2020 7:27 pm
JBTX wrote: Thu Jun 18, 2020 7:18 pm
nisiprius wrote: Thu Jun 18, 2020 6:48 pm
JBTX wrote: Thu Jun 18, 2020 6:32 pm A "Tidal wave of bankruptcies" isn't something I'd regard as temporary or normal.

https://www.nytimes.com/2020/06/18/busi ... virus.html
But, just to be clear, the article is still making a prediction. The tidal wave is, the article says, "coming." It hasn't happened yet. Unusually, though, we do have a clean, falsifiable prediction (i.e one with a time frame)
Robert J. Keach, a director of the American College of Bankruptcy, said many companies had so far managed to put off bankruptcy by amassing cash and conserving it as best they can: drawing down existing credit lines, furloughing workers, delaying projects and taking advantage of federal and state pandemic-relief programs.

But when those programs expire, the companies will start burning through their cash. That’s when bankruptcy filings are likely to soar and stay elevated, Mr. Keach said.

Expect “a Covid-19 cliff” in the next 30 to 60 days, he said.
And it won't take very long to find out if the prediction was accurate.

I'm sure many will recall Meredith Whitney's totally confident prediction, which a fair number of people took as being as good as true, on December 19th, 2010 that 50 to 100 counties, cities, and towns in the United States would have "significant" municipal bond defaults totaling "hundreds of billions" of dollars, and that "it'll be something to worry about within the next 12 months."
OK it is a prediction. And yes it may be wrong. But I struggle with how we can continue to muddle along at less than full capacity, when we were already highly leveraged in the corporate sector even before this happened.

I do recall the dire predictions about municipals, and I believed them, and yes they were wrong. I suspect ARRA and fed reserve actions had something do do with that.

I am admittedly a glass half empty type person on macroeconomic issues and have been for decades. Luckily, for the most part, I firewall those opinions from my investment behavior and mostly "stay the course" outside of some tinkering on the fringes.

You are performing a valuable service.
I like to see people continue to peddle doom and gloom.
It is what builds the "wall of worry" which markets love to climb.

It is when everyone throws in the towel and becomes Pollyanas about the market that i would start to worry about negative outcomes.
And NYT loves to peddle the gloom and doom predictions - it sells.
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Re: "Is this time different?"

Post by SchruteB&B »

Normchad wrote: Thu Jun 18, 2020 5:20 pm this is the first pandemic we’ve had in over 100 years.

It’s not. Asian flu 1957 killed 116,000 Americans and Hong Kong flu 1968 killed approx 100,000 Americans according to the CDC.
protagonist
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Re: "Is this time different?"

Post by protagonist »

In any complex nonlinear system, like the stock market or the economy, every time is different. The more "different" a particular event is, the less likely it is to happen. So small rises and falls in the market are common. Bear markets are less common. Crashes that rapidly recover are even less common. Crashes that take a long time to recover, or don't recover, are progressively less common. Pandemics are less common than seasonal flu outbreaks. Pandemics that kill millions are less common than those that kill thousands. All of these things are way more common than asteroids that hit Earth and wipe out over 50% of species.

The point? Random uncommon events occur commonly, and there are so many potential uncommon events that one cannot predict when or where they will happen or what their impact will ultimately be. 100 years of data is , in the grand scheme of things, nothing, if you are trying to second guess what will happen in the next 100 or 50 or 30 or even 10.

Who knows whether this time is "significantly" different or not. Too many unknown variables at play. We will only know after the fact. Don't waste your time trying to predict the unpredictable. What you do with your money is dependent on your tolerance for risk.
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Re: "Is this time different?"

Post by Normchad »

SchruteB&B wrote: Thu Jun 18, 2020 7:37 pm
Normchad wrote: Thu Jun 18, 2020 5:20 pm this is the first pandemic we’ve had in over 100 years.

It’s not. Asian flu 1957 killed 116,000 Americans and Hong Kong flu 1968 killed approx 100,000 Americans according to the CDC.
Thanks for the info on prior pandemics. I did not know this. I suppose this strengthens my argument, that "this time is not different".
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David Jay
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Re: "Is this time different?"

Post by David Jay »

space needle wrote: Thu Jun 18, 2020 12:16 pmI came across this interview with Jeremy Grantham, the founder of asset management firm GMO: https://www.marketwatch.com/story/stock ... 2020-06-17
Stop reading marketwatch. It's just financial porn.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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Re: "Is this time different?"

Post by JBTX »

livesoft wrote: Thu Jun 18, 2020 2:45 pm
HomerJ wrote: Thu Jun 18, 2020 2:41 pmOkay, never ever ever read anything by Grantham. He has been calling for a crash for the past 20 years. He is ALWAYS predicting a crash.
This is why JBTX can also write:
JBTX wrote: Thu Jun 18, 2020 2:11 pmOver the long term, he has basically predicted in one form or other all of the major crashes. Japan, 2000, 2007. So when he says it is the real deal, I definitely pay attention.
That's cute, but doesn't really draw an accurate picture. It is true he more bearish than average, and it is true that it has caused him to under perform common indexes. But despite his ongoing " bearishness" he has typically had an stock allocation in the mid 50%s. In the three examples above, and now, he is entirely exiting particular markets.

Also, he typically isn't predicting crashes, but driven by projections of subpar rates of returns over 7 year periods, with a general assumption of mean reversion. The mean reversion is where he has missed. And that is largely due to the long term decline in interest rates.

So you can criticize him for missing the interest trend, you have to ask yourself when 30 year rates are around 1.0% nominal do we really believe that trend will continue?
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Re: "Is this time different?"

Post by Fallible »

protagonist wrote: Thu Jun 18, 2020 7:39 pm In any complex nonlinear system, like the stock market or the economy, every time is different. The more "different" a particular event is, the less likely it is to happen. So small rises and falls in the market are common. Bear markets are less common. Crashes that rapidly recover are even less common. Crashes that take a long time to recover, or don't recover, are progressively less common. Pandemics are less common than seasonal flu outbreaks. Pandemics that kill millions are less common than those that kill thousands. All of these things are way more common than asteroids that hit Earth and wipe out over 50% of species.

The point? Random uncommon events occur commonly, and there are so many potential uncommon events that one cannot predict when or where they will happen or what their impact will ultimately be. 100 years of data is , in the grand scheme of things, nothing, if you are trying to second guess what will happen in the next 100 or 50 or 30 or even 10.

Who knows whether this time is "significantly" different or not. Too many unknown variables at play. We will only know after the fact. Don't waste your time trying to predict the unpredictable. What you do with your money is dependent on your tolerance for risk.
And your mention of how much investing risk each of us should tolerate brings us back to the time-honored principles of wise investing as laid out in the Bogleheads' philosophy and based on the best economic, financial, and behavioral minds.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
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Re: "Is this time different?"

Post by livesoft »

I suspect Grantham doesn't think about Le Chatelier's Principle when he makes predictions.
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Re: "Is this time different?"

Post by iamlucky13 »

I had a lot I was going to say, but it seems most of it has been said.

My main take is that the specific scenario is different, but the levels of risk do not appear to be.

I actually agree with Mr. Grantham's pessimistic view of the current market situation (I'm not familiar with his past, failed predictions of collapse), but I don't agree with his method of madly dumping US stocks and significantly overweighting international stocks to try to balance them with a big chunk of high priced bonds.

If I could know for certain when to get out of the market and back in, I could make a lot of money. In reality, the range of credible scenarios include that I am wrong, and will harm my finances by missing out on a lot of gains, or that the bubble deflates gradually through stagnation.

So instead, I keep my stock, bond, and cash allocations consistent with my long-term goals. I have a high stock allocation because I'm a long ways from my planned withdrawal phase, but I keep a modest amount of bonds and cash to cover possible unplanned needs in between now and then, as well as maintain flexibility in my spending by living below my means.

With my allocation decided, I stick with low cost passive investments, and take comfort that I am likely to perform at roughly the market average, so even if I take major losses, I will not likely have more trouble than most investors (and most likely do better due to having an above average savings rate).

When I get to age 64, I plan to have evolved my allocation to closer to what yours is than where I am today.

I would not look for people like Grantham to invest with. As nisiprius showed, he has not really achieved superior results long term. I guess technically, he has slightly, but his expenses bring the overall performance back down to in line with the rest of the market.
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Re: "Is this time different?"

Post by firebirdparts »

livesoft wrote: Thu Jun 18, 2020 8:33 pm I suspect Grantham doesn't think about Le Chatelier's Principle when he makes predictions.
Probably failed thermo.
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Rowan Oak
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Re: "Is this time different?"

Post by Rowan Oak »

JBTX wrote: Thu Jun 18, 2020 4:50 pm But there are so many major macro factors going in the wrong direction that any one of them could throw us into a long tailspin, thus my gut feeling Grantham is right, whether that be in 2 weeks, 2 months or 2 years - or even longer.
If Wall Street fortune-tellers keep predicting crashes then eventually they will be right. It won't mean they knew enough at any point to accurately predict the future, but if they get lucky it sure can help sell books, AUM fees, etc.. The best part is almost nobody goes back to point out all the wrong guesses. Nothing new.
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger
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Re: "Is this time different?"

Post by MP123 »

firebirdparts wrote: Thu Jun 18, 2020 9:06 pm
livesoft wrote: Thu Jun 18, 2020 8:33 pm I suspect Grantham doesn't think about Le Chatelier's Principle when he makes predictions.
Probably failed thermo.
So that's what that's called. :beer
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Re: "Is this time different?"

Post by corp_sharecropper »

nisiprius wrote: Thu Jun 18, 2020 1:22 pm 1) "Is this time different?" I don't know.

2) "Are you going to do anything different?" No.

3) "Jeremy Grantham says..."

a) Well, he's usually pessimistic. One article identifies him as "one of Wall Street's most notable and outspoken bears." What would be "different" would be for him to be optimistic.

b) And Jeremy Siegel says
We’ve seen the lows in March and we will never see those lows again.... I think 2021 could be a boom year,” he told the business channel. “With the liquidity that the Fed is adding — unprecedented — it could be a really good year.
So what else is new?

Tune out the noise. Sound bites from assorted gurus tell you nothing useful. I learned a long time ago that I process them selectively--the ones I notice are the ones that tell me what I want to hear.

Here's how the GMO US Equity mutual fund has performed compared to the Vanguard 500 Index Fund:

Source

Image

The good news is that in 35 years, either fund would have multiplied your investment more than thirty-fold.

You can interpret this chart a number of ways, but after beating the S&P for about the first half of its life, it then underperformed it for about the second half. If two investors had each put $10,000 into each fund on the day of GMUEX's inception, at the end of it all the S&P 500 investor (orange) would actually be very slightly ahead of the GMO investor (blue).

I would estimate that Jeremy Grantham knows roughly a thousand times as much about investing as I do, but I don't see any evidence that that knowledge translates into much higher returns than I can get in an index fund.
The way I interpret that chart... This Grantham guy is a straight up LIAR if he said he has 0 US equities in his portfolio and yet his fund has a performance chart that looks like the S&P's twin. If it's a matter of "well that's my fund for clients, I'm saying I wouldn't personally have US equities" then he's even more of a joke. Not one single person on this planet is worth being lauded for unknowable predictions that got lucky on or being followed for current advice. Not a single person.
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