'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

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Forester
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'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by Forester »

Waiting For The Last Dance https://www.gmo.com/europe/research-lib ... ast-dance/

Worth a read :sharebeer. Grantham concludes by advocating for value & emerging stocks. So it's a bubble, but a US one.
Firemenot
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by Firemenot »

Forester wrote: Tue Jan 05, 2021 12:50 pm Waiting For The Last Dance https://www.gmo.com/europe/research-lib ... ast-dance/

Worth a read :sharebeer. Grantham concludes by advocating for value & emerging stocks. So it's a bubble, but a US one.
GMO is a broken record. They are perma-bears. Anyone listening to them would have missed out on most of the gains since 2009.

Maybe they’re right this time but their track record hasn’t been good for predictions.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by BJJ_GUY »

Firemenot wrote: Tue Jan 05, 2021 12:56 pm
Forester wrote: Tue Jan 05, 2021 12:50 pm Waiting For The Last Dance https://www.gmo.com/europe/research-lib ... ast-dance/

Worth a read :sharebeer. Grantham concludes by advocating for value & emerging stocks. So it's a bubble, but a US one.
GMO is a broken record. They are perma-bears. Anyone listening to them would have missed out on most of the gains since 2009.

Maybe they’re right this time but their track record hasn’t been good for predictions.
Did you read the article? Not that I'm a big Grantham fan (I'm not really), but he directly addresses what you say. On the other hand, if you did - and still have the same conclusion - then fair enough.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by Triple digit golfer »

Noise.

I think it's much more useful to look at past predictions and compare to what happened than to look at articles about future predictions and never circle back to hold the writers accountable.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by willthrill81 »

Triple digit golfer wrote: Tue Jan 05, 2021 1:15 pm I think it's much more useful to look at past predictions and compare to what happened than to look at articles about future predictions and never circle back to hold the writers accountable.
:thumbsup
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by BJJ_GUY »

Triple digit golfer wrote: Tue Jan 05, 2021 1:15 pm Noise.

I think it's much more useful to look at past predictions and compare to what happened than to look at articles about future predictions and never circle back to hold the writers accountable.
Isn't that exactly what the beginning of this paper does? It explains their views during historical periods of underperformance that resulted from their views and positioning. It also explains how they benefited and outperformed market benchmarks once prices ultimately course corrected.

It's impossible to do a post mortem on the last decade of underperformance as the cycle has yet to end.

Whether any of us agree with them or not, it's unfair in this particular context to attempt to measure the current cycle performance (or to say they have 'failed') as the entire premise is that they have historically underperformed during extended markets, but, at least historically, they ended up adding value when measuring from market trough to trough (or peak to peak, however one might measure the cycle). In other words, the jury is still out -- and this is a major point of the article.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by Firemenot »

BJJ_GUY wrote: Tue Jan 05, 2021 1:12 pm
Firemenot wrote: Tue Jan 05, 2021 12:56 pm
Forester wrote: Tue Jan 05, 2021 12:50 pm Waiting For The Last Dance https://www.gmo.com/europe/research-lib ... ast-dance/

Worth a read :sharebeer. Grantham concludes by advocating for value & emerging stocks. So it's a bubble, but a US one.
GMO is a broken record. They are perma-bears. Anyone listening to them would have missed out on most of the gains since 2009.

Maybe they’re right this time but their track record hasn’t been good for predictions.
Did you read the article? Not that I'm a big Grantham fan (I'm not really), but he directly addresses what you say. On the other hand, if you did - and still have the same conclusion - then fair enough.
No. I’ve read enough GMO articles over the last decade to know I don’t want to read anymore GMO articles making predictions.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by BJJ_GUY »

Firemenot wrote: Tue Jan 05, 2021 1:30 pm
BJJ_GUY wrote: Tue Jan 05, 2021 1:12 pm
Firemenot wrote: Tue Jan 05, 2021 12:56 pm
Forester wrote: Tue Jan 05, 2021 12:50 pm Waiting For The Last Dance https://www.gmo.com/europe/research-lib ... ast-dance/

Worth a read :sharebeer. Grantham concludes by advocating for value & emerging stocks. So it's a bubble, but a US one.
GMO is a broken record. They are perma-bears. Anyone listening to them would have missed out on most of the gains since 2009.

Maybe they’re right this time but their track record hasn’t been good for predictions.
Did you read the article? Not that I'm a big Grantham fan (I'm not really), but he directly addresses what you say. On the other hand, if you did - and still have the same conclusion - then fair enough.
No. I’ve read enough GMO articles over the last decade to know I don’t want to read anymore GMO articles making predictions.
haha. fair enough. this sentiment I understand.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by Hodor »

The current bull market is less than a year old. Not a good sign that the very first sentence is wrong.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by marcopolo »

willthrill81 wrote: Tue Jan 05, 2021 1:16 pm
Triple digit golfer wrote: Tue Jan 05, 2021 1:15 pm I think it's much more useful to look at past predictions and compare to what happened than to look at articles about future predictions and never circle back to hold the writers accountable.
:thumbsup
I am surprised you gave this comment a thumbs up.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by Broken Man 1999 »

If one has an appropriate AA, bull markets and bear markets have been accounted for when settling on the AA.

OP, does YOUR AA consider bull and bear markets? If so, don't worry. If not, get thee to a better AA!

Broken Man 1999
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by fenixtx423 »

Image

Here is the SP500 since 1950 with the mean trend line. Doesn't look too bubbly to me.
Last edited by fenixtx423 on Tue Jan 05, 2021 2:09 pm, edited 1 time in total.
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Ramjet
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by Ramjet »

Hodor wrote: Tue Jan 05, 2021 2:02 pm The current bull market is less than a year old. Not a good sign that the very first sentence is wrong.
Yeah no kidding

2009 bull died in December of 2018 :oops:
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by eye.surgeon »

BJJ_GUY wrote: Tue Jan 05, 2021 1:12 pm
Firemenot wrote: Tue Jan 05, 2021 12:56 pm
Forester wrote: Tue Jan 05, 2021 12:50 pm Waiting For The Last Dance https://www.gmo.com/europe/research-lib ... ast-dance/

Worth a read :sharebeer. Grantham concludes by advocating for value & emerging stocks. So it's a bubble, but a US one.
GMO is a broken record. They are perma-bears. Anyone listening to them would have missed out on most of the gains since 2009.

Maybe they’re right this time but their track record hasn’t been good for predictions.
Did you read the article? Not that I'm a big Grantham fan (I'm not really), but he directly addresses what you say. On the other hand, if you did - and still have the same conclusion - then fair enough.
I read the article and finished wondering how he ignored the 20% market drop in 2020 which apparently still counts as a bull market in his analysis.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by gjlynch17 »

I often disagree with GMO's analysis but I always enjoy reading GMO's publications due to their consistent, rational and contrarian outlook as it forces me to question my assumptions. This article is no different. It is an excellent article and worth reading. With that said, I disagree with his conclusion that this market is similar to 2008, 2000 or Japan 1989. The reason I disagree is the following statement from the article: "Bonds . . . are even more spectacularly expense by historical comparison than stocks". That was not the case in prior bubbles cited. As long as the Fed is committed to zero interest rates, higher equity valuations may be justified.

I do agree with his implicit conclusion that Value and Emerging Market are likely to outperform U.S. equities but that does not necessarily mean that U.S. equities are due for a crash, only that all asset classes are likely to have lower returns than historical averages, only Value and Emerging Market having less of a gap.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by jrbdmb »

So when did the current bull market "officially" start? Looking at a few index charts on Yahoo Finance it could be May 2020 (NASDAQ) or September 2020 (S&P 500 and Wilshire 5000). Or does it start from the market bottom in March 2020 (though we didn't know it at the time)?

And more importantly, when will it end? :happy
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by checkyourmath »

Total garbage Jeremy still hasn't figured it out after 50 years in the industry. The total asset cap is probably around 100 trillion. The Fed is using a few trillion to selectively inflate debt from the system, which is why we have inflation. We are at the beginning of a secular bull run not a bubble. The Fed knows to buy high and sell higher and occasionally buy on the dip. I just hope they have the right asset allocation as the dollar declines.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by MinnGuyInvesting »

The article seemed too wordy for me to take my time to read it.

I'm busy trying to make money.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by garlandwhizzer »

GMO has been on the wrong side of the great bull market that has been running since 2009 with a single brief Covid-19 respite. If you had followed their advice you've missed out on huge gains. That does not guarantee that their advice is worthless now. The thing I worry about most is not just elevated PE1, PE10, PB numbers, but frothy market sentiment concentrated in select US growth stocks, mega-cap tech and also innovative tech IPOs and small cap tech stocks that offer few if any profits only a good narrative about outsized future prospects.

Are we in a new age where valuation doesn't matter at all due to the FED backstop and zero bond yields? Personally I am hedging my bets on this question. There is much less enthusiasm and much more reasonable valuations outside the US. I have kept considerable INTL exposure through a decade of underperformance. I still hav 40% of all equity in INTL and half of that 20% in EM. Some months ago when the disparity between US growth and value stocks reached near 2000 levels, I modestly shifted TSM to SCV and LCV. I am now 25% SCV, 5% LCV and 70% TSM which itself contains considerable exposure to value. That probably adds up to in excess of 50% value which is plenty of value for my taste. Time will tell how this works out and when, if ever, it works out to increase my risk adjusted returns. I believe INTL and value will certainly increase my diversification relative to TSM which tilts heavily to growth and tech. The comforting news as I see it is that if the growth stock crash that GMO expects actually happens, I'll weather it better. If it doesn't happen and growth continues to drive the market higher, TSM which has plenty of growth is still my largest US equity holding.

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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by 3funder »

fenixtx423 wrote: Tue Jan 05, 2021 2:09 pm Image

Here is the SP500 since 1950 with the mean trend line. Doesn't look too bubbly to me.
Yikes! It definitely feels a lot bubblier!
Global stocks, US bonds, and time.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by unclescrooge »

checkyourmath wrote: Tue Jan 05, 2021 2:32 pm Total garbage Jeremy still hasn't figured it out after 50 years in the industry. The total asset cap is probably around 100 trillion. The Fed is using a few trillion to selectively inflate debt from the system, which is why we have inflation. We are at the beginning of a secular bull run not a bubble. The Fed knows to buy high and sell higher and occasionally buy on the dip. I just hope they have the right asset allocation as the dollar declines.
Do we have inflation?

https://www.bloomberg.com/news/articles ... ar-auction
:mrgreen:
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by David Jay »

fenixtx423 wrote: Tue Jan 05, 2021 2:09 pm Image

Here is the SP500 since 1950 with the mean trend line. Doesn't look too bubbly to me.
2000 looks bubbly to me. But that's about it.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by silent_john »

Fully-fledged bubble with arguably 3 crashes (2011, 2018, 2020) :confused
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by BJJ_GUY »

jrbdmb wrote: Tue Jan 05, 2021 2:22 pm So when did the current bull market "officially" start? Looking at a few index charts on Yahoo Finance it could be May 2020 (NASDAQ) or September 2020 (S&P 500 and Wilshire 5000). Or does it start from the market bottom in March 2020 (though we didn't know it at the time)?

And more importantly, when will it end? :happy
I know you're being sarcastic, but the 2009 'bull market' hasn't ended yet. Valuations never reverted toward historical levels (and more often than not it overshoots and goes lower than average). Of course there are all sorts of ways to define market cycles, but logic is enough to say that financial markets did not clear.

And, to be fair to Grantham, while he talks of bubbles etc., he very clearly states that he is not trying to time anything as he has no idea when market sentiment and investor behavior will change (with the subsequent sell-offs, capitulation, etc.).
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by Ocean77 »

It may very well be a bubble. I actually agree that we have one now with the US stock market.

But:
a) I could be wrong
b) Even if there is a bubble, it could keep going for years and years
c) If there is one, it can end in a number of different ways (crash, gradually deflate, stagnate until the economy catches up, etc)

In other words, even if one would be 100% correct that we currently have bubble, this info would be entirely useless.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by minimalistmarc »

BJJ_GUY wrote: Tue Jan 05, 2021 3:16 pm
jrbdmb wrote: Tue Jan 05, 2021 2:22 pm So when did the current bull market "officially" start? Looking at a few index charts on Yahoo Finance it could be May 2020 (NASDAQ) or September 2020 (S&P 500 and Wilshire 5000). Or does it start from the market bottom in March 2020 (though we didn't know it at the time)?

And more importantly, when will it end? :happy
I know you're being sarcastic, but the 2009 'bull market' hasn't ended yet. Valuations never reverted toward historical levels (and more often than not it overshoots and goes lower than average). Of course there are all sorts of ways to define market cycles, but logic is enough to say that financial markets did not clear.

And, to be fair to Grantham, while he talks of bubbles etc., he very clearly states that he is not trying to time anything as he has no idea when market sentiment and investor behavior will change (with the subsequent sell-offs, capitulation, etc.).
Bull markets and bear markets are basically meaningless terms.

There have been 2 “bear markets” in the last 2 years which marked the beginning of new bull markets. This bull started in March 2020.

I don’t understand why the bears didn’t buy in March. Yes the market could have headed lower but it only had another 20% drop to get to minus 50%. It really seems that bears are desperate to only buy at the absolute lowest price and anything above that pains them.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by BJJ_GUY »

minimalistmarc wrote: Tue Jan 05, 2021 3:23 pm
Bull markets and bear markets are basically meaningless terms.

There have been 2 “bear markets” in the last 2 years which marked the beginning of new bull markets. This bull started in March 2020.
Okay, semantically, fine.

In reality, despite the market drawdowns, the valuations have not reset. Even at the bottom of the recent drawdown valuations were materially above average (no matter which method is used, so who cares if CAPE isn't something believed in).

Ultimately, the price being paid for an asset is all that matters. Technical definitions of bear/bull garbage don't change the fact that the US equity market (on average) is expensive.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by minimalistmarc »

BJJ_GUY wrote: Tue Jan 05, 2021 3:28 pm
minimalistmarc wrote: Tue Jan 05, 2021 3:23 pm
Bull markets and bear markets are basically meaningless terms.

There have been 2 “bear markets” in the last 2 years which marked the beginning of new bull markets. This bull started in March 2020.
Okay, semantically, fine.

In reality, despite the market drawdowns, the valuations have not reset. Even at the bottom of the recent drawdown valuations were materially above average (no matter which method is used, so who cares if CAPE isn't something believed in).

Ultimately, the price being paid for an asset is all that matters. Technical definitions of bear/bull garbage don't change the fact that the US equity market (on average) is expensive.
Valuations are often very high at the bottom of bear markets as company earnings are zero to negative. You could see a PE ratio of 1000s at the bottom of a bear market but if you think earnings are going to significantly improve in the next 10 years the price can seem very cheap. That’s my take on it anyway.

That being said, how much more of a drop did bears want. If the US markets drop by 30 - 35% you can be reasonably confident you are over half way to the bottom. My view is that some permabears will never buy because at market bottoms you have to be optimistic that the future will be better times, and bears are always pessimistic.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by Brianmcg321 »

Yawn.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by sunnywindy »

fenixtx423 wrote: Tue Jan 05, 2021 2:09 pm Image

Here is the SP500 since 1950 with the mean trend line. Doesn't look too bubbly to me.
Here are some similar charts using (probably) different statistical measurements (I'm not a math person). You might reach a slightly different conclusion (or not). Personally, I am not too worried about the market hight, but I do agree with Grantham that the Fed has inflated the equity market and someday the market will have a down phase corresponding to the Fed's withdrawal of support.

https://www.advisorperspectives.com/dsh ... erformance
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by willthrill81 »

marcopolo wrote: Tue Jan 05, 2021 2:04 pm
willthrill81 wrote: Tue Jan 05, 2021 1:16 pm
Triple digit golfer wrote: Tue Jan 05, 2021 1:15 pm I think it's much more useful to look at past predictions and compare to what happened than to look at articles about future predictions and never circle back to hold the writers accountable.
:thumbsup
I am surprised you gave this comment a thumbs up.
I don't know why. When it comes to investing, I'm a pragmatist, not an ideologue.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by marcopolo »

willthrill81 wrote: Tue Jan 05, 2021 4:13 pm
marcopolo wrote: Tue Jan 05, 2021 2:04 pm
willthrill81 wrote: Tue Jan 05, 2021 1:16 pm
Triple digit golfer wrote: Tue Jan 05, 2021 1:15 pm I think it's much more useful to look at past predictions and compare to what happened than to look at articles about future predictions and never circle back to hold the writers accountable.
:thumbsup
I am surprised you gave this comment a thumbs up.
I don't know why. When it comes to investing, I'm a pragmatist, not an ideologue.
In previous discussion you seemed much more focused on the theoretical (or back tested) ability to "predict" future results, than actually looking at how such previous forward predictions panned out in real life. I am thinking such discussions as CAPE and Shiller's corresponding prediction results, or Trend Following and Meb Faber's results with GTAA.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by willthrill81 »

marcopolo wrote: Tue Jan 05, 2021 4:38 pm
willthrill81 wrote: Tue Jan 05, 2021 4:13 pm
marcopolo wrote: Tue Jan 05, 2021 2:04 pm
willthrill81 wrote: Tue Jan 05, 2021 1:16 pm
Triple digit golfer wrote: Tue Jan 05, 2021 1:15 pm I think it's much more useful to look at past predictions and compare to what happened than to look at articles about future predictions and never circle back to hold the writers accountable.
:thumbsup
I am surprised you gave this comment a thumbs up.
I don't know why. When it comes to investing, I'm a pragmatist, not an ideologue.
In previous discussion you seemed much more focused on the theoretical (or back tested) ability to "predict" future results, than actually looking at how such previous forward predictions panned out in real life. I am thinking such discussions as CAPE and Shiller's corresponding prediction results, or Trend Following and Meb Faber's results with GTAA.
I typically lean toward the inductive approach, but I do use the deductive approach as well.

Regarding the CAPE issue, I agreed with you that the forward predictions since CAPE was put forward were not historically precise enough to be very useful because the relationship between the two certainly changed, even though the relationship was stronger than before and maintained the same direction (i.e., higher starting CAPE led to lower returns and vice versa).
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by bck63 »

Forester wrote: Tue Jan 05, 2021 12:50 pm Waiting For The Last Dance https://www.gmo.com/europe/research-lib ... ast-dance/

Worth a read :sharebeer. Grantham concludes by advocating for value & emerging stocks. So it's a bubble, but a US one.
Bull market since 2009? What about the crash of 2015-16 and the crash of 2020?
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by marcopolo »

willthrill81 wrote: Tue Jan 05, 2021 4:47 pm
marcopolo wrote: Tue Jan 05, 2021 4:38 pm
willthrill81 wrote: Tue Jan 05, 2021 4:13 pm
marcopolo wrote: Tue Jan 05, 2021 2:04 pm
willthrill81 wrote: Tue Jan 05, 2021 1:16 pm

:thumbsup
I am surprised you gave this comment a thumbs up.
I don't know why. When it comes to investing, I'm a pragmatist, not an ideologue.
In previous discussion you seemed much more focused on the theoretical (or back tested) ability to "predict" future results, than actually looking at how such previous forward predictions panned out in real life. I am thinking such discussions as CAPE and Shiller's corresponding prediction results, or Trend Following and Meb Faber's results with GTAA.
I typically lean toward the inductive approach, but I do use the deductive approach as well.

Regarding the CAPE issue, I agreed with you that the forward predictions since CAPE was put forward were not historically precise enough to be very useful because the relationship between the two certainly changed, even though the relationship was stronger than before and maintained the same direction (i.e., higher starting CAPE led to lower returns and vice versa).
Fair enough. The bolded statement is why i was a bit surprised by your reaction. But, i get it. Thanks.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by Indexer8520 »

bck63 wrote: Tue Jan 05, 2021 4:55 pm
Forester wrote: Tue Jan 05, 2021 12:50 pm Waiting For The Last Dance https://www.gmo.com/europe/research-lib ... ast-dance/

Worth a read :sharebeer. Grantham concludes by advocating for value & emerging stocks. So it's a bubble, but a US one.
Bull market since 2009? What about the crash of 2015-16 and the crash of 2020?
Exactly! Technically this current bull market isn't even a year old
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by Elysium »

While I don't pay too much attention to Grantham/GMO since they are always talking doom & gloom, what he may be alluding to is the specific valuation disparity in recent years between growth, value and US/Intl. While I believe US/Intl disparity may be somewhat justified, the Growth vs Value does look like RTM is called for, this is a very unusual thing that happened in last 4 years.

For instance 2017-2020:
LG: 24%
LV: 9%
SG: 20%
SV: 6%
Link
Because S&P 500 & TSM does get influenced by the stocks that are outperforming by a large margin, they have benefited to a smaller extent. It does look very similar to 2000 bubble level on the Growth vs Value front, especially with large tech stocks like Tesla, and several small tech companies that are driving prices up with no explanation.

I do not think any of this is actionable, should anyone feel like doing something, other than checking the risk level of their portfolio hasn't moved too far out of comfort zone.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by SchruteB&B »

bck63 wrote: Tue Jan 05, 2021 4:55 pm
Forester wrote: Tue Jan 05, 2021 12:50 pm Waiting For The Last Dance https://www.gmo.com/europe/research-lib ... ast-dance/

Worth a read :sharebeer. Grantham concludes by advocating for value & emerging stocks. So it's a bubble, but a US one.
Bull market since 2009? What about the crash of 2015-16 and the crash of 2020?
And 2011? I feel like 2011 never gets any love.

And 2018.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by BJJ_GUY »

minimalistmarc wrote: Tue Jan 05, 2021 3:38 pm
BJJ_GUY wrote: Tue Jan 05, 2021 3:28 pm
minimalistmarc wrote: Tue Jan 05, 2021 3:23 pm
Bull markets and bear markets are basically meaningless terms.

There have been 2 “bear markets” in the last 2 years which marked the beginning of new bull markets. This bull started in March 2020.
Okay, semantically, fine.

In reality, despite the market drawdowns, the valuations have not reset. Even at the bottom of the recent drawdown valuations were materially above average (no matter which method is used, so who cares if CAPE isn't something believed in).

Ultimately, the price being paid for an asset is all that matters. Technical definitions of bear/bull garbage don't change the fact that the US equity market (on average) is expensive.
Valuations are often very high at the bottom of bear markets as company earnings are zero to negative. You could see a PE ratio of 1000s at the bottom of a bear market but if you think earnings are going to significantly improve in the next 10 years the price can seem very cheap. That’s my take on it anyway.

That being said, how much more of a drop did bears want. If the US markets drop by 30 - 35% you can be reasonably confident you are over half way to the bottom. My view is that some permabears will never buy because at market bottoms you have to be optimistic that the future will be better times, and bears are always pessimistic.
I agree that earnings-based valuations are flawed, which is why I've never preferred the CAPE ratio, even when smoothed over 10 years. Valuations using revenues or a margin-adjusted earnings removes the pro-cyclicality from earnings as the denominator. You can use market cap / GDP as a proxy as well, and this ratio is also more predictive of future returns compared with CAPE. By all of these measures the index is at (or very near) historical highs.

I agree with the general sentiment of your second paragraph as well. I would said that valuation conscious investors shouldn't care so much about whether the market just dropped 30-35%, but rather what is the change in valuations (which use things other than earnings to avoid that high variability you point out).
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by willthrill81 »

BJJ_GUY wrote: Tue Jan 05, 2021 3:28 pm In reality, despite the market drawdowns, the valuations have not reset.
They may never 'reset' (e.g. revert to some historic mean level). Since 1992, CAPE has only been below its 'historic average' (depending on which average we're talking about) for a few months in the 2008-2009 downturn before quickly rising back above it. If the near collapse of the financial sector wasn't enough to cause a 'reset', I really don't know what would.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by 000 »

Thanks; good read.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by Triple digit golfer »

BJJ_GUY wrote: Tue Jan 05, 2021 3:28 pm
minimalistmarc wrote: Tue Jan 05, 2021 3:23 pm
Bull markets and bear markets are basically meaningless terms.

There have been 2 “bear markets” in the last 2 years which marked the beginning of new bull markets. This bull started in March 2020.
Okay, semantically, fine.

In reality, despite the market drawdowns, the valuations have not reset. Even at the bottom of the recent drawdown valuations were materially above average (no matter which method is used, so who cares if CAPE isn't something believed in).

Ultimately, the price being paid for an asset is all that matters. Technical definitions of bear/bull garbage don't change the fact that the US equity market (on average) is expensive.
How do you know it is expensive? People said it was expensive a year ago. Aren't you just guessing it is based on values in the past? Cars are expensive compared to the past. Are we due for a car crash (pun intended)?
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by lostdog »

Forester affect en route. Another 10 year bull market incoming.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by BJJ_GUY »

willthrill81 wrote: Tue Jan 05, 2021 6:08 pm
BJJ_GUY wrote: Tue Jan 05, 2021 3:28 pm In reality, despite the market drawdowns, the valuations have not reset.
They may never 'reset' (e.g. revert to some historic mean level). Since 1992, CAPE has only been below its 'historic average' (depending on which average we're talking about) for a few months in the 2008-2009 downturn before quickly rising back above it. If the near collapse of the financial sector wasn't enough to cause a 'reset', I really don't know what would.
By this logic, can prices continue to outpace revenues (and thus earnings) by 3-5x?

Also, I should have been using the term median rather than 'historical average' in my previous posts. So, you are correct about two things, CAPE ratio isn't the most useful method, and we should be thinking about valuation (based on revenues, or something else less variable than earnings) in relation to the historical median of rolling 10-12yr periods (at the index level).
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by APX32 »

Grantham the perma-bear has been dead wrong for 10+ years. As long as the Fed is in charge and QE keeps coming, nothing drastic will happen.

I have to give you credit Forester. Even though your crash and top predictions have been dead wrong and laughably so, you at least keep trying. And as a contrarian indicator you never disappoint. Should be a solid year in the markets for 2021.

I wonder if anyone took your advice yesterday and sold all their Bitcoin, you know, last chance to take profits above $30k and all.

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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by willthrill81 »

BJJ_GUY wrote: Tue Jan 05, 2021 6:34 pm
willthrill81 wrote: Tue Jan 05, 2021 6:08 pm
BJJ_GUY wrote: Tue Jan 05, 2021 3:28 pm In reality, despite the market drawdowns, the valuations have not reset.
They may never 'reset' (e.g. revert to some historic mean level). Since 1992, CAPE has only been below its 'historic average' (depending on which average we're talking about) for a few months in the 2008-2009 downturn before quickly rising back above it. If the near collapse of the financial sector wasn't enough to cause a 'reset', I really don't know what would.
By this logic, can prices continue to outpace revenues (and thus earnings) by 3-5x?

Also, I should have been using the term median rather than 'historical average' in my previous posts. So, you are correct about two things, CAPE ratio isn't the most useful method, and we should be thinking about valuation (based on revenues, or something else less variable than earnings) in relation to the historical median of rolling 10-12yr periods (at the index level).
Sooner or later, valuations will almost certainly stop growing meaningfully, but that doesn't mean that valuations are destined to ever shrink. There are good reasons why valuations are higher now than in history, lower interest rates being one of them.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by BJJ_GUY »

Triple digit golfer wrote: Tue Jan 05, 2021 6:23 pm
BJJ_GUY wrote: Tue Jan 05, 2021 3:28 pm
minimalistmarc wrote: Tue Jan 05, 2021 3:23 pm
Bull markets and bear markets are basically meaningless terms.

There have been 2 “bear markets” in the last 2 years which marked the beginning of new bull markets. This bull started in March 2020.
Okay, semantically, fine.

In reality, despite the market drawdowns, the valuations have not reset. Even at the bottom of the recent drawdown valuations were materially above average (no matter which method is used, so who cares if CAPE isn't something believed in).

Ultimately, the price being paid for an asset is all that matters. Technical definitions of bear/bull garbage don't change the fact that the US equity market (on average) is expensive.
How do you know it is expensive? People said it was expensive a year ago. Aren't you just guessing it is based on values in the past? Cars are expensive compared to the past. Are we due for a car crash (pun intended)?
Cars do not represent a claim on a business, and thus a very long-term stream of cash flows that can be discounted back to present value. You can literally use simple math to back into the implied return of a stock. How is this in any way the same as a depreciating asset?

There seems to be a fundamental disconnect as it pertains to what valuation actually means. I'm not saying it'll help anyone time the market, or that one should even take action. But we should all agree that equity ownership in real businesses have real value, otherwise none of this makes any sense.
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by CyclingDuo »

Elysium wrote: Tue Jan 05, 2021 5:27 pm While I don't pay too much attention to Grantham/GMO since they are always talking doom & gloom, what he may be alluding to is the specific valuation disparity in recent years between growth, value and US/Intl. While I believe US/Intl disparity may be somewhat justified, the Growth vs Value does look like RTM is called for, this is a very unusual thing that happened in last 4 years.

For instance 2017-2020:
LG: 24%
LV: 9%
SG: 20%
SV: 6%
Link
Because S&P 500 & TSM does get influenced by the stocks that are outperforming by a large margin, they have benefited to a smaller extent. It does look very similar to 2000 bubble level on the Growth vs Value front, especially with large tech stocks like Tesla, and several small tech companies that are driving prices up with no explanation.

I do not think any of this is actionable, should anyone feel like doing something, other than checking the risk level of their portfolio hasn't moved too far out of comfort zone.
It is interesting when looking at value vs. growth, what institutional investors have been doing compared to retail investors (big fish vs. the small fish)...

In fact, since 2008, institutional investors have poured nearly $79 billion into equity-income funds while individual investors have withdrawn nearly $76 billion from them over the same time period. It’s not uncommon for institutional investors to be ahead of the general public when it comes to investing, but how long will this striking disparity last?

Image
https://www.hartfordfunds.com/market-pe ... dends.html

An article from 2018...

Why Is No One Listening to Jeremy Grantham?

https://www.institutionalinvestor.com/a ... y-grantham
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Re: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by Fallible »

Market predictions are often misread as what will happen, but when the authors' usual saving modifiers, qualifiers, and conditioners (I bolded below) are considered, the predictions are more implied, sometimes barely that. Yet implication may be all that's needed to gain attention. A sampling:
But this bubble will burst in due time, no matter how hard the Fed tries to support it, with consequent damaging effects on the economy and on portfolios. Make no mistake – for the majority of investors today, this could very well be the most important event of your investing lives.
...
I am long retired from the job of portfolio management but I am happy to give my opinion here: it is highly probable that we are in a major bubble event in the U.S. market, of the type we typically have every several decades and last had in the late 1990s. It will very probably end badly, although nothing is certain.
"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: 'The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble' - GMO

Post by Triple digit golfer »

BJJ_GUY wrote: Tue Jan 05, 2021 6:38 pm
Triple digit golfer wrote: Tue Jan 05, 2021 6:23 pm
BJJ_GUY wrote: Tue Jan 05, 2021 3:28 pm
minimalistmarc wrote: Tue Jan 05, 2021 3:23 pm
Bull markets and bear markets are basically meaningless terms.

There have been 2 “bear markets” in the last 2 years which marked the beginning of new bull markets. This bull started in March 2020.
Okay, semantically, fine.

In reality, despite the market drawdowns, the valuations have not reset. Even at the bottom of the recent drawdown valuations were materially above average (no matter which method is used, so who cares if CAPE isn't something believed in).

Ultimately, the price being paid for an asset is all that matters. Technical definitions of bear/bull garbage don't change the fact that the US equity market (on average) is expensive.
How do you know it is expensive? People said it was expensive a year ago. Aren't you just guessing it is based on values in the past? Cars are expensive compared to the past. Are we due for a car crash (pun intended)?
Cars do not represent a claim on a business, and thus a very long-term stream of cash flows that can be discounted back to present value. You can literally use simple math to back into the implied return of a stock. How is this in any way the same as a depreciating asset?

There seems to be a fundamental disconnect as it pertains to what valuation actually means. I'm not saying it'll help anyone time the market, or that one should even take action. But we should all agree that equity ownership in real businesses have real value, otherwise none of this makes any sense.
I understand that all completely. But what is that discount rate and can it fluctuate? Maybe investors are simply willing to pay more for equities now than in the past. I'm just pontificating, but interest rates are low, there aren't many pensions around anymore, and more people need to invest their own money and where else to put it? Perhaps demand is higher and that is driving prices higher. Investors maybe okay with a lower return.
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