Bear Cub Smells Bubble

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nigel_ht
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Re: Bear Cub Smells Bubble

Post by nigel_ht »

anoop wrote: Wed Aug 26, 2020 5:59 pm TINA + FOMO -> BUY BUY BUY -> FANGMAN + BLK

In most 401(k)'s, you have to settle for whatever crumbs of the above fall to into the S&P500 index.

(Sell when the fed says that things are going so well that they are going to be less accommodative.)
That won't happen before the end of the year.
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000
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Re: Bear Cub Smells Bubble

Post by 000 »

nisiprius wrote: Wed Aug 26, 2020 7:54 pm
000 wrote: Wed Aug 26, 2020 3:31 pm
Robot Monster wrote: Wed Aug 26, 2020 8:13 am If you're asking about US stocks, Vanguard says, "no".
Has Vanguard ever said US stocks are overvalued?
In 1999, John C. Bogle's "chairman's letter" in the fund annual or semiannual reports had something weasel-worded that perhaps could have been interpreted that way... and in 1999, Bogle saying something was almost Vanguard saying something. Ah, here it is, p. 102 of The House that Bogle Built:
In the chairman's letter to shareholders of the S&P 500 index fund in March of 1999, John C. Bogle wrote:Just as the returns provided by stocks--particularly large-cap stocks-were well about average in 1998, so were the returns over the past decade. That is sure to change. We are not forecasting a sharp pullback, though one may well occur.... That's why it's imperative for investors to build an investment program upon realistic expectations of future returns rather than on an extrapolation of the extraordinary returns of the recent past. This is especially true when it comes to expectations for the S&P 500 Index. At year-end the index stood at a historically high price level relative to earnings and several other important measures. However, it cannot--and will not--continue to rise forever. Investors who ignore this truism of investing do so at their own peril.
OK, that isn't quite "US stocks are overvalued."
Thanks.

What do you think was meant by "it's imperative for investors to build an investment program upon realistic expectations of future returns rather than on an extrapolation of the extraordinary returns of the recent past"? Just staying the course with bonds? Keeping projections low?
rockstar
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Re: Bear Cub Smells Bubble

Post by rockstar »

Let's say we're in a bubble. People will have to be motivated to sell for it to pop. And they'll need somewhere else to put their money. Where would they put it?

My approach is to continue to buy QQQ knowing that at some point it will crash. I have no idea when this will happen, but it will happen. What I have to do is decide at what price I will sell to minimize my losses. I will take losses, and I will take a combination of short term and long term capital gains as well. I can't fear the tax man. But if I'm smart about it, I will still make more money than having it sit in a money market right now, which pays close to zero.
nigel_ht
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Re: Bear Cub Smells Bubble

Post by nigel_ht »

000 wrote: Wed Aug 26, 2020 7:58 pm
nisiprius wrote: Wed Aug 26, 2020 7:54 pm
000 wrote: Wed Aug 26, 2020 3:31 pm
Robot Monster wrote: Wed Aug 26, 2020 8:13 am If you're asking about US stocks, Vanguard says, "no".
Has Vanguard ever said US stocks are overvalued?
In 1999, John C. Bogle's "chairman's letter" in the fund annual or semiannual reports had something weasel-worded that perhaps could have been interpreted that way... and in 1999, Bogle saying something was almost Vanguard saying something. Ah, here it is, p. 102 of The House that Bogle Built:
In the chairman's letter to shareholders of the S&P 500 index fund in March of 1999, John C. Bogle wrote:Just as the returns provided by stocks--particularly large-cap stocks-were well about average in 1998, so were the returns over the past decade. That is sure to change. We are not forecasting a sharp pullback, though one may well occur.... That's why it's imperative for investors to build an investment program upon realistic expectations of future returns rather than on an extrapolation of the extraordinary returns of the recent past. This is especially true when it comes to expectations for the S&P 500 Index. At year-end the index stood at a historically high price level relative to earnings and several other important measures. However, it cannot--and will not--continue to rise forever. Investors who ignore this truism of investing do so at their own peril.
OK, that isn't quite "US stocks are overvalued."
Thanks.

What do you think was meant by "it's imperative for investors to build an investment program upon realistic expectations of future returns rather than on an extrapolation of the extraordinary returns of the recent past"? Just staying the course with bonds? Keeping projections low?
It means "I moved a big chunk of my portfolio to bonds".
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000
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Re: Bear Cub Smells Bubble

Post by 000 »

nigel_ht wrote: Wed Aug 26, 2020 8:03 pm It means "I moved a big chunk of my portfolio to bonds".
Yes, I know Bogle did that personally. I am wondering what course of action it was intended to encourage for its audience, though.
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Re: Bear Cub Smells Bubble

Post by 000 »

rockstar wrote: Wed Aug 26, 2020 8:02 pm Let's say we're in a bubble. People will have to be motivated to sell for it to pop. And they'll need somewhere else to put their money. Where would they put it?
They can move it to non-tech stocks.
Also, a lot of "their money" will just evaporate as the share price decreases because the price is set by a single transaction.
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Re: Bear Cub Smells Bubble

Post by rockstar »

000 wrote: Wed Aug 26, 2020 8:06 pm
rockstar wrote: Wed Aug 26, 2020 8:02 pm Let's say we're in a bubble. People will have to be motivated to sell for it to pop. And they'll need somewhere else to put their money. Where would they put it?
They can move it to non-tech stocks.
Also, a lot of "their money" will just evaporate as the share price decreases because the price is set by a single transaction.
But why would they sell?
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000
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Re: Bear Cub Smells Bubble

Post by 000 »

rockstar wrote: Wed Aug 26, 2020 8:09 pm
000 wrote: Wed Aug 26, 2020 8:06 pm
rockstar wrote: Wed Aug 26, 2020 8:02 pm Let's say we're in a bubble. People will have to be motivated to sell for it to pop. And they'll need somewhere else to put their money. Where would they put it?
They can move it to non-tech stocks.
Also, a lot of "their money" will just evaporate as the share price decreases because the price is set by a single transaction.
But why would they sell?
I don't know. A bad (whether true or fake) news event? Some new hot stocks? Rising interest rates?
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nisiprius
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Re: Bear Cub Smells Bubble

Post by nisiprius »

000 wrote: Wed Aug 26, 2020 7:58 pm
nisiprius wrote: Wed Aug 26, 2020 7:54 pm
000 wrote: Wed Aug 26, 2020 3:31 pm
Robot Monster wrote: Wed Aug 26, 2020 8:13 am If you're asking about US stocks, Vanguard says, "no".
Has Vanguard ever said US stocks are overvalued?
In 1999, John C. Bogle's "chairman's letter" in the fund annual or semiannual reports had something weasel-worded that perhaps could have been interpreted that way... and in 1999, Bogle saying something was almost Vanguard saying something. Ah, here it is, p. 102 of The House that Bogle Built:
In the chairman's letter to shareholders of the S&P 500 index fund in March of 1999, John C. Bogle wrote:Just as the returns provided by stocks--particularly large-cap stocks-were well about average in 1998, so were the returns over the past decade. That is sure to change. We are not forecasting a sharp pullback, though one may well occur.... That's why it's imperative for investors to build an investment program upon realistic expectations of future returns rather than on an extrapolation of the extraordinary returns of the recent past. This is especially true when it comes to expectations for the S&P 500 Index. At year-end the index stood at a historically high price level relative to earnings and several other important measures. However, it cannot--and will not--continue to rise forever. Investors who ignore this truism of investing do so at their own peril.
OK, that isn't quite "US stocks are overvalued."
Thanks.

What do you think was meant by "it's imperative for investors to build an investment program upon realistic expectations of future returns rather than on an extrapolation of the extraordinary returns of the recent past"? Just staying the course with bonds? Keeping projections low?
Your interpretation is as good as mine, and all I have is the excerpt quoted in Lewis Braham's book, not the whole letter. I read it as "keeping projections low," but I think there is also an actual warning there: "don't expect to escape a 'sharp pullback' forever." Notice that he says one may "well" occur.

I think I remember illustrations of the benefits of nontaxable compounding in a 401(k) often used assumed returns of 18% per year and crazy numbers like that.
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PicassoSparks
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Re: Bear Cub Smells Bubble

Post by PicassoSparks »

000 wrote: Wed Aug 26, 2020 7:58 pm Thanks.

What do you think was meant by "it's imperative for investors to build an investment program upon realistic expectations of future returns rather than on an extrapolation of the extraordinary returns of the recent past"? Just staying the course with bonds? Keeping projections low?
When valuations are high, expected returns drop. When valuations are low, expected returns go up. You can’t really use this information for market timing, but you can use it in your planning for the future. In extreme circumstances, it might cause you to change your AA as it did for Bogle in the late 90s. But really it’s about the idea that if you’ve had really good returns recently, you should expect that your upcoming returns will be more modest as the market reverts to the mean.

In the case of someone buying new stocks today, that would imply that the S&P 500—which has had an incredible run—should continue to do well, but you shouldn’t be projecting that the next decade will be as strong as the last decade and using that as a reason to overweight it. And even if you’ve bought and held the S&P 500 as you are making plans for the future and deciding if you need to save more aggressively, or if you’re on track, you should be expecting lower returns in the coming decade than the past decade.

Then you’ll live through the decade and see how things actually perform and adjust your plans again.
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TechGuy365
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Re: Bear Cub Smells Bubble

Post by TechGuy365 »

nisiprius wrote: Wed Aug 26, 2020 2:46 pm Anyone know how the transistor count in a Tesla compares with the transistor count in a Toyota Corolla? Is it that much higher?
Don’t know about transistor count but I bet a Tesla has many more sensors and lines of code, which makes it more intelligent. I don’t think Corolla has a “Dog Mode” 🐶 #NationalDogDay https://www.cnbc.com/2019/02/14/tesla-d ... eiled.html
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Re: Bear Cub Smells Bubble

Post by 000 »

nisiprius wrote: Wed Aug 26, 2020 8:13 pm I think I remember illustrations of the benefits of nontaxable compounding in a 401(k) often used assumed returns of 18% per year and crazy numbers like that.
:shock: :oops:

This is very useful context, thanks.
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Re: Bear Cub Smells Bubble

Post by JS-Elcano »

I must admit I am a bit scared at how the market keeps going up and up. I am sticking to my 70/30, but I am biting my tongue every day :shock:
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Re: Bear Cub Smells Bubble

Post by anoop »

nigel_ht wrote: Wed Aug 26, 2020 7:55 pm
anoop wrote: Wed Aug 26, 2020 5:59 pm TINA + FOMO -> BUY BUY BUY -> FANGMAN + BLK

In most 401(k)'s, you have to settle for whatever crumbs of the above fall to into the S&P500 index.

(Sell when the fed says that things are going so well that they are going to be less accommodative.)
That won't happen before the end of the year.
Which year? :D
langlands
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Re: Bear Cub Smells Bubble

Post by langlands »

BogleFan510 wrote: Wed Aug 26, 2020 12:38 pm As I read the OP, a few ideas came to my mind that I am sharing to try to keep minds open to a different way of looking at market valuations for companies like Apple.

My thoughts:
The value of equities, as reflected in stock indexes is a sort of proxy for the cumulative 'Global Balance Sheet' of incorporated assets held. The values also our aggregated assumptions about the future income to be generated by those assets, respectively.

If you look at the 'global balance sheet' of economic activity, there are some long term trends which have recently hit inflection points such that the wealth creation potential of the two 'sheets' above are dramatically changed. A few of the top trends are:

----- Capital markets are global. Money moves efficiently to its best use, faster and faster. This is a key factor behind the rapid economic rise of China. US, EU, and Japanese and Western capital flowed there despite political barriers, transforming the country. As Kenichi Ohmae argued in his book The Borderless World the late 80s, one can argue, large nation states have very little power over their own currency anymore.

----- Trading markets are defacto global. Incredibly efficient global supply chains are creating very efficient product and service markets. The impact for companies is an incredible pressure to 'win,' which is both harder and exponentially more profitable. This over time, wealth will concentrate in the winning global supply chain platforms. Well positioned companies will accumulate historically disproportionate wealth.

----- Information capital has emerged as increasingly important to corporate balance sheets. When I researched asset based value creation on the 80s and 90s, I classified the wealth creating assets of corporations within 5 categories: 1) physical capital (e.g. trucks, land); 2) financial capital (e.g. currency, debt instruments, stocks, related contracts), 3) human capital (e.g. skilled labor, education), 4) information capital (e.g. data, patents, process knowledge), and 5) brand/habitual capital (manifests as consumer and b2b habits and 'sticky' relationships, like those built via marketing strategies. Over time the relative value of information capital as the key to wealth creation has dramatically changed our economic system. Two interesting differences: information is fundamentally 'not scarce' as long as distribution systems like networks exist, and the `marginal cost of production' of information while formerly very expensive is exponentially trending towards zero. So in the global balance sheet, if you measure the percentage of the 5 asset types, trucks, people, money, etc are mostly similar, but the amount/value in information and brand/habit are ballooning. This is because if you have the information and brand edge, in an industry like Apple or Google's core markers, you print money. Your key asset has a marginal cost trending down and your market for sales and profit is global, sticky and trending towards monopoly power (if you can sustain it).

----- Commoditization of global markets. Where scarce assets create no proprietary advantages, competition for capital is driving scale economies and production efficiency to historic levels. Since information flows globally, the best ideas are allowed to rapidly create efficiency where inefficient production models used to be allowed to persist. This is taking time as political forces still get in the way, but over time seems inevitable.

So, I believe the valuations we are seeing reflect these changes in the global economy. Traditional measures such as 10 yr avg P\E are not the right way to look at a changing global supply chain and market landscape.

* Key industries will continue to globalize
* The most efficient global supply chains will trend toward monopolies
* Information intensive industries (if proprietary) be hugely profitable
(as they benefit from decreasing marginal costs of production and scale economies... e.g. web apps, pharma, software; hence the best investments, if among the winners)
* Industries without scarce asset advantages to protect profits will be squeezed by global efficiency forces, with value flowing directly to consumers vs becoming profits.

Just my thoughts as I read OP. My personal opinion is that bubbles are the new normal. I also believe that financial capital may not be a scarce thing in the future, so it may not matter as much as it has been in the past, which could be bad news for investors, but there will be a lot of wealth created for consumers, so we all should be ok. A lot depends on if the future' big winners' use public markets to finance their companies or not. That said, no other game in town to play.
Very insightful post. (I'm quoting it in full so hopefully more people see it who aren't browsing through all the pages in the thread.)
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Re: Bear Cub Smells Bubble

Post by UpsetRaptor »

The bear threads always end up wrong eventually. It’s just a matter of time. The market makes new highs sometimes but never makes new lows.
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Re: Bear Cub Smells Bubble

Post by 000 »

UpsetRaptor wrote: Wed Aug 26, 2020 8:42 pm The bear threads always end up wrong eventually. It’s just a matter of time. The market makes new highs sometimes but never makes new lows.
Your statement, although clever, is not actually insightful.

Stocks could lose 99% and not reach a new low. That would still be catastrophic for stock investors.
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Re: Bear Cub Smells Bubble

Post by whodidntante »

TechGuy365 wrote: Wed Aug 26, 2020 8:35 pm
nisiprius wrote: Wed Aug 26, 2020 2:46 pm Anyone know how the transistor count in a Tesla compares with the transistor count in a Toyota Corolla? Is it that much higher?
Don’t know about transistor count but I bet a Tesla has many more sensors and lines of code, which makes it more intelligent. I don’t think Corolla has a “Dog Mode” 🐶 #NationalDogDay https://www.cnbc.com/2019/02/14/tesla-d ... eiled.html
It does. The problem is the Corolla is continuously in dog mode. :wink:
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TechGuy365
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Re: Bear Cub Smells Bubble

Post by TechGuy365 »

whodidntante wrote: Wed Aug 26, 2020 9:01 pm
TechGuy365 wrote: Wed Aug 26, 2020 8:35 pm
nisiprius wrote: Wed Aug 26, 2020 2:46 pm Anyone know how the transistor count in a Tesla compares with the transistor count in a Toyota Corolla? Is it that much higher?
Don’t know about transistor count but I bet a Tesla has many more sensors and lines of code, which makes it more intelligent. I don’t think Corolla has a “Dog Mode” 🐶 #NationalDogDay https://www.cnbc.com/2019/02/14/tesla-d ... eiled.html
It does. The problem is the Corolla is continuously in dog mode. :wink:
Ouch :D
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Re: Bear Cub Smells Bubble

Post by rockstar »

PicassoSparks wrote: Wed Aug 26, 2020 8:34 pm
000 wrote: Wed Aug 26, 2020 7:58 pm Thanks.

What do you think was meant by "it's imperative for investors to build an investment program upon realistic expectations of future returns rather than on an extrapolation of the extraordinary returns of the recent past"? Just staying the course with bonds? Keeping projections low?
When valuations are high, expected returns drop. When valuations are low, expected returns go up. You can’t really use this information for market timing, but you can use it in your planning for the future. In extreme circumstances, it might cause you to change your AA as it did for Bogle in the late 90s. But really it’s about the idea that if you’ve had really good returns recently, you should expect that your upcoming returns will be more modest as the market reverts to the mean.

In the case of someone buying new stocks today, that would imply that the S&P 500—which has had an incredible run—should continue to do well, but you shouldn’t be projecting that the next decade will be as strong as the last decade and using that as a reason to overweight it. And even if you’ve bought and held the S&P 500 as you are making plans for the future and deciding if you need to save more aggressively, or if you’re on track, you should be expecting lower returns in the coming decade than the past decade.

Then you’ll live through the decade and see how things actually perform and adjust your plans again.
True. I sold when the market dropped in March. It crossed the 300 day moving average, and I bailed. Once the PE reached 20x, I bought back in over a couple of days for exactly the reason you point out--lower valuation provide higher returns. Valuation approaches for buying makes perfect sense when markets are tanking.
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Re: Bear Cub Smells Bubble

Post by willthrill81 »

Sourc3 wrote: Wed Aug 26, 2020 1:21 am
rascott wrote: Wed Aug 26, 2020 12:41 am
DonIce wrote: Wed Aug 26, 2020 12:31 am
rascott wrote: Wed Aug 26, 2020 12:15 am TSLA isn't a tech stock.

I quit reading after that
Of course it is. "Tech" is more than just the companies that serve you ads.
It makes cars. I'm not interested in debating it further.
Solar roofs and home power walls are not cars.
Most people don't consider manufacturing to be tech. I'm inclined to agree.
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Re: Bear Cub Smells Bubble

Post by aqan »

rascott wrote: Wed Aug 26, 2020 12:15 am TSLA isn't a tech stock.

I quit reading after that
its a tablet housed inside a car.
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Re: Bear Cub Smells Bubble

Post by aqan »

000 wrote: Wed Aug 26, 2020 12:00 am Are stocks in a bubble? Or have they reached a permanently high plateau? Or do I need a dose of optimism? :mrgreen:
Sure they are but who can say how long before the bubble bursts? Dive in now or you'll end up making an impulsive decision a week before the crash.
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Re: Bear Cub Smells Bubble

Post by 000 »

aqan wrote: Wed Aug 26, 2020 9:59 pm
000 wrote: Wed Aug 26, 2020 12:00 am Are stocks in a bubble? Or have they reached a permanently high plateau? Or do I need a dose of optimism? :mrgreen:
Sure they are but who can say how long before the bubble bursts? Dive in now or you'll end up making an impulsive decision a week before the crash.
I was already in. I just wanted to discuss the valuations/sentiment.
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Re: Bear Cub Smells Bubble

Post by Mactheriverrat »

14 day RSI is at historical high but the 21 day RSI still has lots of room to grow. So yes a pullback is coming but sometimes thats healthy.
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Re: Bear Cub Smells Bubble

Post by rockstar »

Mactheriverrat wrote: Wed Aug 26, 2020 10:07 pm 14 day RSI is at historical high but the 21 day RSI still has lots of room to grow. So yes a pullback is coming but sometimes thats healthy.
Yep. We're due for one. No idea when folks will start profit taking. But tomorrow should be interesting. We have initial claims coming out, and the Fed chairman is speaking.
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Re: Bear Cub Smells Bubble

Post by brad.clarkston »

nedsaid wrote: Wed Aug 26, 2020 8:09 am We are seeing optimism in the markets, certainly. But we haven't seen euphoria, this isn't 1999. I recently performed another round of mild rebalancing, I sold a small part of my US Total Market Index putting 1/2 into US Bond Index, 1/4 into Developed Markets Index, and 1/4 into US Large Value Index.

So I would say that valuations in Large Growth are "stretched" but on the other hand the very large Internet/High Tech companies are generating insane amounts of cash. High valuations but for a pretty good reason.

As the US Market keeps hitting new highs, I will bit by bit take a bit off the top and redeploy into bonds and into cheaper stocks.
Funny I just did the same recently (minus LVI) TSM has already made back the haircut so I probably didn't cut enough.
Also thinking about dropping REIT from my IRA account as my roth has the same weight finally - trying to get down to a single hard tilt overall.
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Re: Bear Cub Smells Bubble

Post by UpsetRaptor »

000 wrote: Wed Aug 26, 2020 8:48 pm
UpsetRaptor wrote: Wed Aug 26, 2020 8:42 pm The bear threads always end up wrong eventually. It’s just a matter of time. The market makes new highs sometimes but never makes new lows.
Your statement, although clever, is not actually insightful.

Stocks could lose 99% and not reach a new low. That would still be catastrophic for stock investors.
This is somewhat true, but not as much as your OP. A fearful poster making an open-ended bear case with no timeframe, whose points were mostly just as pertinent a few years ago as today; we see these all the time, either posts or articles in the financial media, and the outcome's always the same. Someday, maybe soon or maybe not for many years, a bear market will occur, quite possibly a manifestation of some of your points. And then the market will recover and hit new highs.
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Re: Bear Cub Smells Bubble

Post by not4me »

000 wrote: Wed Aug 26, 2020 3:18 pm

First, it is difficult to reconcile the pessimism in the fixed income market (investors accepting 0% real yields) and the flight to metal with the optimism in the stock market. Bond yields and gold price suggest stock returns will be underwhelming in years to come, yet stocks continue to be bid up.

Second, it is difficult to tell how much of the run up in stocks and gold is due to expansion of the money supply versus other factors.

Third, yes it seems we have entered an unprecedented area in the markets, which suggests old models may have to be thrown out.
It strikes me that you see 'optimism' in stocks because prices are high, but 'pessimism' in bonds because prices are high (although you chose to quote yield instead of price). I think they're sending similar messages about the future. As for valuations, it would help to clarify if we're talking about valuations in terms of bonds vs stocks, stocks today vs historical, stocks against a specific target, etc.

I don't know about throwing old models, but I'm in a camp that says the model will likely need to be tweaked after Chairman Powell's Jackson Hole speech in a few hours. Based on small sample of posts I've read, I may be in a minority. I'm not predicting a bursting bubble later today & Fed has telegraphed enough that I don't know we'll see large change today. But, I do think it will be significant & we'd be wise to understand it. Won't have to wait long to know if I'm wrong
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Re: Bear Cub Smells Bubble

Post by rascott »

If one was really worried about a bubble in the cap weighted SP500.... there are tons of other equity indexes that have returned basically nothing for years. (Small caps, value, international, emerging markets, REITS e.t.c).

OP should put his money where his words are.... and move everything to basically any other equity offering beyond the US cap weighted one.
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Re: Bear Cub Smells Bubble

Post by knpstr »

asif408 wrote: Wed Aug 26, 2020 3:26 pm
knpstr wrote: Wed Aug 26, 2020 1:06 pm Ultimately interest rates and valuations are intertwined. And with the historic low interest rates we have today we should see historic high valuations.
Except for Europe and Japan and much of the rest of the developed world markets, where interest are as low or lower than US rates, yet valuations are 1/3 to 1/2 those of US stocks.
There are other factors.
But if nothing else changed and Europe and Japan had higher rates than they do today, their valuations would (or should) go down accordingly.

Interest rates and valuations aren't so closely related that x% interest rate must always equal $y valuation.
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Re: Bear Cub Smells Bubble

Post by CyclingDuo »

000 wrote: Wed Aug 26, 2020 10:06 pm
aqan wrote: Wed Aug 26, 2020 9:59 pm
000 wrote: Wed Aug 26, 2020 12:00 am Are stocks in a bubble? Or have they reached a permanently high plateau? Or do I need a dose of optimism? :mrgreen:
Sure they are but who can say how long before the bubble bursts? Dive in now or you'll end up making an impulsive decision a week before the crash.
I was already in. I just wanted to discuss the valuations/sentiment.
41.x posts per day since you joined in July of this year. This has to be a new record in terms of prolific # of posts here at Bogleheads! :beer

Just curious why you joined and what your particular goals were for joining in terms of your investing?

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Re: Bear Cub Smells Bubble

Post by asif408 »

knpstr wrote: Thu Aug 27, 2020 6:52 am
asif408 wrote: Wed Aug 26, 2020 3:26 pm
knpstr wrote: Wed Aug 26, 2020 1:06 pm Ultimately interest rates and valuations are intertwined. And with the historic low interest rates we have today we should see historic high valuations.
Except for Europe and Japan and much of the rest of the developed world markets, where interest are as low or lower than US rates, yet valuations are 1/3 to 1/2 those of US stocks.
There are other factors.
But if nothing else changed and Europe and Japan had higher rates than they do today, their valuations would (or should) go down accordingly.

Interest rates and valuations aren't so closely related that x% interest rate must always equal $y valuation.
So what is the rationale for Japan having high double digit valuations in the 1980s when interest rates were in the 4-8% range? And interest rates in Japan have been near 0 since the mid 1990s, yet valuations were extremely high in the late 1990s and mid 2000s yet now their valuations are in the mid-teens? There is a similar story in Europe. Valuations were much higher in the 1990s and 2000s in Europe when interest rates were higher. Now Europe has lower valuations when interest rates are lower.

I'd be curious to know what the other factors are. I've seen demographics mentioned but Japan's demographic profile hasn't changed much in the last 30-40 years, their population growth rate has been falling pretty steadily since the 1960s (maybe it's the same for Europe, not as familiar with Europe's history). Seems to me the US is the outlier and there aren't any compelling reasons why lower interest rates should justify higher valuations.
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Stinky
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Re: Bear Cub Smells Bubble

Post by Stinky »

CyclingDuo wrote: Thu Aug 27, 2020 7:14 am
000 wrote: Wed Aug 26, 2020 10:06 pm
aqan wrote: Wed Aug 26, 2020 9:59 pm
000 wrote: Wed Aug 26, 2020 12:00 am Are stocks in a bubble? Or have they reached a permanently high plateau? Or do I need a dose of optimism? :mrgreen:
Sure they are but who can say how long before the bubble bursts? Dive in now or you'll end up making an impulsive decision a week before the crash.
I was already in. I just wanted to discuss the valuations/sentiment.
41.x posts per day since you joined in July of this year. This has to be a new record in terms of prolific # of posts here at Bogleheads! :beer

Just curious why you joined and what your particular goals were for joining in terms of your investing?

CyclingDuo
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Ramjet
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Re: Bear Cub Smells Bubble

Post by Ramjet »

Steve Reading wrote: Wed Aug 26, 2020 2:26 pm
knpstr wrote: Wed Aug 26, 2020 1:06 pm Ultimately interest rates and valuations are intertwined. And with the historic low interest rates we have today we should see historic high valuations.
Literally this +10000.
100% agree, we better get used to high valuations
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Kenkat
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Re: Bear Cub Smells Bubble

Post by Kenkat »

TechGuy365 wrote: Wed Aug 26, 2020 9:04 pm
whodidntante wrote: Wed Aug 26, 2020 9:01 pm
TechGuy365 wrote: Wed Aug 26, 2020 8:35 pm
nisiprius wrote: Wed Aug 26, 2020 2:46 pm Anyone know how the transistor count in a Tesla compares with the transistor count in a Toyota Corolla? Is it that much higher?
Don’t know about transistor count but I bet a Tesla has many more sensors and lines of code, which makes it more intelligent. I don’t think Corolla has a “Dog Mode” 🐶 #NationalDogDay https://www.cnbc.com/2019/02/14/tesla-d ... eiled.html
It does. The problem is the Corolla is continuously in dog mode. :wink:
Ouch :D
There was a post recently on toyotanation.com asking about availability of a tune for the Corolla to increase performance. Hope spring eternal.

On the transistor question, both the Corolla and the Tesla have them, but for the Tesla, it’s transistors all the way down.
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Re: Bear Cub Smells Bubble

Post by anoop »

Ramjet wrote: Thu Aug 27, 2020 8:20 am
Steve Reading wrote: Wed Aug 26, 2020 2:26 pm
knpstr wrote: Wed Aug 26, 2020 1:06 pm Ultimately interest rates and valuations are intertwined. And with the historic low interest rates we have today we should see historic high valuations.
Literally this +10000.
100% agree, we better get used to high valuations
May be you guys mean “get used to ever higher valuations”, because we are about to see Apple at $10T with substantially similar earnings to what they have now.
JackoC
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Re: Bear Cub Smells Bubble

Post by JackoC »

knpstr wrote: Thu Aug 27, 2020 6:52 am
asif408 wrote: Wed Aug 26, 2020 3:26 pm
knpstr wrote: Wed Aug 26, 2020 1:06 pm Ultimately interest rates and valuations are intertwined. And with the historic low interest rates we have today we should see historic high valuations.
Except for Europe and Japan and much of the rest of the developed world markets, where interest are as low or lower than US rates, yet valuations are 1/3 to 1/2 those of US stocks.
There are other factors.
But if nothing else changed and Europe and Japan had higher rates than they do today, their valuations would (or should) go down accordingly.
Interest rates and valuations aren't so closely related that x% interest rate must always equal $y valuation.
I agree if 'nothing else changed' higher rates would lower valuations in both US and ex-US. That's the simple math of discounting future earnings in either case. 'Nothing else changes' means future earnings in year n are the same, risk premium is the same, and the present value of those earning is earnings(n)/(1+riskless rate+risk premium)^n. That's smaller if 'riskless rate' is higher. Current and past 10 yr earnings are also the same so PE or CAPE goes down if 'riskless rate' goes up *under that simple assumption of 'all else equal'*.

Practically speaking you need to know how the events or policies which make 'riskless rate' go up affect earnings now and future, and the risk premium, which they almost always will one way or another, to arrive at anything useful. Especially considering an index whose composition can change significantly over a many year period.

So no particular conundrum in Japan or Europe valuations and rates having both gone down. The perceived future earnings prospects of companies went down, in part for the same reasons that rates went down, in part for reasons which might be less directly related (like type of companies, 'sector' probably oversimplifies this, more heavily weighted in Japan/Europe indices perceived to get a smaller future slice of the total corporate profit pie than the ones more heavily weighted in the US index, a trend which could continue, stabilize or reverse).

Anyway, sometimes the statement 'low interest rates justify higher valuations' seems to be made to imply that *expected returns* are unlikely to be reduced by higher valuations. But current valuations can be 'justified' and still imply lower expected returns (only the most stubborn wishful thinkers refuse to accept that when it comes to safe bonds). Also, if we assume price variance will be similar in the future to the past (in contrast to expected return, it's really hard to make a rational estimate of long term future variance other than just assuming past variance) then bad outcomes for stocks (say in a given year) will be more common. But this is all a long way from accurately assessing 'bubbles' and predicting their burst. That's generally impossible IMO, with predictions held to any rigorous standard (eg. the very early, therefore wrong, Greenspan implied prediction in the infamous 'irrational exuberance' comment).
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Re: Bear Cub Smells Bubble

Post by egrets »

I came in here expecting to see one of those security camera films of a bear cub in the family wading pool.
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Ramjet
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Re: Bear Cub Smells Bubble

Post by Ramjet »

anoop wrote: Thu Aug 27, 2020 9:13 am
Ramjet wrote: Thu Aug 27, 2020 8:20 am
Steve Reading wrote: Wed Aug 26, 2020 2:26 pm
knpstr wrote: Wed Aug 26, 2020 1:06 pm Ultimately interest rates and valuations are intertwined. And with the historic low interest rates we have today we should see historic high valuations.
Literally this +10000.
100% agree, we better get used to high valuations
May be you guys mean “get used to ever higher valuations”
Yes, exactly
burritoLover
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Re: Bear Cub Smells Bubble

Post by burritoLover »

Even Jim Cramer, who pushed investors to buy, buy, buy during the peak of the dot com bubble, is getting nervous:
“Sometimes you’ve got to quit a little while you’re ahead,” Cramer said. “Right now, we’ve got the smoking-hottest stock market I have ever seen, and it rewards companies for success so generously that it’s [nothing] like any other market I’ve ever seen.”

That's the sign of the apocalypse.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
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Re: Bear Cub Smells Bubble

Post by guyinlaw »

Time is your friend; impulse is your enemy. - John C. Bogle
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Re: Bear Cub Smells Bubble

Post by Robot Monster »

burritoLover wrote: Thu Aug 27, 2020 11:35 am Even Jim Cramer, who pushed investors to buy, buy, buy during the peak of the dot com bubble, is getting nervous:
“Sometimes you’ve got to quit a little while you’re ahead,” Cramer said. “Right now, we’ve got the smoking-hottest stock market I have ever seen, and it rewards companies for success so generously that it’s [nothing] like any other market I’ve ever seen.”

That's the sign of the apocalypse.
He's had his trepidatious moments before now:

March 31st
Jim Cramer reveals second-quarter playbook, says the quarter is ‘going to be so ugly’
https://www.cnbc.com/2020/03/31/jim-cra ... -ugly.html

April 8th
Cramer: Wait For Next Pullback Before Buying Shares
https://finance.yahoo.com/news/cramer-w ... 42918.html

Cramer says he and hedge fund billionaire David Tepper are confused by the market’s recent rally
https://www.cnbc.com/2020/04/08/cramer- ... rally.html

#cramervsgodzilla
“I delight in what I fear.” ― Shirley Jackson
burritoLover
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Re: Bear Cub Smells Bubble

Post by burritoLover »

Robot Monster wrote: Thu Aug 27, 2020 11:56 am
burritoLover wrote: Thu Aug 27, 2020 11:35 am Even Jim Cramer, who pushed investors to buy, buy, buy during the peak of the dot com bubble, is getting nervous:
“Sometimes you’ve got to quit a little while you’re ahead,” Cramer said. “Right now, we’ve got the smoking-hottest stock market I have ever seen, and it rewards companies for success so generously that it’s [nothing] like any other market I’ve ever seen.”

That's the sign of the apocalypse.
He's had his trepidatious moments before now:

March 31st
Jim Cramer reveals second-quarter playbook, says the quarter is ‘going to be so ugly’
https://www.cnbc.com/2020/03/31/jim-cra ... -ugly.html

April 8th
Cramer: Wait For Next Pullback Before Buying Shares
https://finance.yahoo.com/news/cramer-w ... 42918.html

Cramer says he and hedge fund billionaire David Tepper are confused by the market’s recent rally
https://www.cnbc.com/2020/04/08/cramer- ... rally.html

#cramervsgodzilla
maybe he learned something from the dot com bubble.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
anoop
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Re: Bear Cub Smells Bubble

Post by anoop »

"Amid all the cheerleading it may be worth pointing out that aggregate corporate profits have gone nowhere in the past 8 years. Markets keep playing multiple expansion driven by central bank liquidity & illusory EPS growth manufactured by shrinking float due to buybacks."

https://twitter.com/NorthmanTrader/stat ... 3335341056
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Re: Bear Cub Smells Bubble

Post by meowcat »

nedsaid wrote: Wed Aug 26, 2020 8:09 am
000 wrote: Wed Aug 26, 2020 12:00 am 1. Tech stocks are priced to perfection. TSLA, AAPL come to mind.
2. 100% stock portfolios are all the rage. Bonds are bad. Cash is trash. Gold is gross.
3. The mainstream is pushing TINA (There Is No Alternative to stocks) as well.
4. Almost everyone is either euphoric about stocks or has succumbed to TINA.
5. Berkshire Hathaway has succumbed to holding huge portions of AAPL.
6. People who would never have owned (as much in) stocks in the past are piling in.
7. Some are day trading their stimulus checks or student loans.
8. Some are leaving good jobs in their 30s to live off stocks passively for 50+ years.
9. I have seen discussions about the stock market in non-investment contexts.

Are stocks in a bubble? Or have they reached a permanently high plateau? Or do I need a dose of optimism? :mrgreen:
We are seeing optimism in the markets, certainly. But we haven't seen euphoria, this isn't 1999. I recently performed another round of mild rebalancing, I sold a small part of my US Total Market Index putting 1/2 into US Bond Index, 1/4 into Developed Markets Index, and 1/4 into US Large Value Index.

So I would say that valuations in Large Growth are "stretched" but on the other hand the very large Internet/High Tech companies are generating insane amounts of cash. High valuations but for a pretty good reason.

As the US Market keeps hitting new highs, I will bit by bit take a bit off the top and redeploy into bonds and into cheaper stocks.
Exactly! We haven't witnessed "irrational exuberance", yet.
More people should learn to tell their dollars where to go instead of asking them where they went. | -Roger Babson
rascott
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Re: Bear Cub Smells Bubble

Post by rascott »

000 wrote: Wed Aug 26, 2020 8:05 pm
nigel_ht wrote: Wed Aug 26, 2020 8:03 pm It means "I moved a big chunk of my portfolio to bonds".
Yes, I know Bogle did that personally. I am wondering what course of action it was intended to encourage for its audience, though.
At the time.... bonds were yielding about 7%. So that actually was decent alternative.
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Re: Bear Cub Smells Bubble

Post by Mactheriverrat »

rockstar wrote: Wed Aug 26, 2020 10:26 pm
Mactheriverrat wrote: Wed Aug 26, 2020 10:07 pm 14 day RSI is at historical high but the 21 day RSI still has lots of room to grow. So yes a pullback is coming but sometimes thats healthy.
Yep. We're due for one. No idea when folks will start profit taking. But tomorrow should be interesting. We have initial claims coming out, and the Fed chairman is speaking.
14 day RSI right at historical highs today.
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minimalistmarc
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Re: Bear Cub Smells Bubble

Post by minimalistmarc »

rockstar wrote: Wed Aug 26, 2020 8:02 pm Let's say we're in a bubble. People will have to be motivated to sell for it to pop. And they'll need somewhere else to put their money. Where would they put it?

My approach is to continue to buy QQQ knowing that at some point it will crash. I have no idea when this will happen, but it will happen. What I have to do is decide at what price I will sell to minimize my losses. I will take losses, and I will take a combination of short term and long term capital gains as well. I can't fear the tax man. But if I'm smart about it, I will still make more money than having it sit in a money market right now, which pays close to zero.
Good plan, nothing can go wrong with it that I can see!
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