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

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
BJJ_GUY
Posts: 531
Joined: Wed Mar 13, 2019 7:45 am

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

Post by BJJ_GUY »

corn18 wrote: Sat Jan 09, 2021 7:58 pm I'm not seeing ALL rainbows and unicorns since 2009. Maybe I'm missing something.

Image
I think there is a lot of talking past each other going on.

On one hand, no one is disputing the fact that the market has had some steep drawdowns since 2009. The bull market has not been a straight line upward. And, yes, literal definitions allow someone to say there was a bear market, or a correction. As a result, one might then say something like "how can we still be in the same market cycle when we experienced these correction/bear periods?"

On the other hand, folks talking about a continued cycle (as I have) are referring to index stock market valuations. While there have been drawdowns in price, the valuations have remained materially higher than historical median valuations (and I'm talking about more than CAPE; this is a pretty universal understanding across various valuation methods).

Seems like the two camps in here are kind of debating different things. Just my observation, for what that's worth
stocknoob4111
Posts: 1819
Joined: Sun Jan 07, 2018 12:52 pm

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

Post by stocknoob4111 »

000 wrote: Sat Jan 09, 2021 9:25 pm Thanks for sharing. I partially share your sentiment. Would you mind sharing how you're staying fully invested but prepared for Dot Com 2.0? Are you tilting away from tech or holding a lot of non-stocks? Or just mentally preparing yourself?
My portfolio is 90/10, given current valuations I think it's prudent to be mentally ready for a multi year drawdown. If it does not happen then great, otherwise it's not going to take you by surprise.
User avatar
corn18
Posts: 2136
Joined: Fri May 22, 2015 6:24 am

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

Post by corn18 »

BJJ_GUY wrote: Sat Jan 09, 2021 9:30 pm
corn18 wrote: Sat Jan 09, 2021 7:58 pm I'm not seeing ALL rainbows and unicorns since 2009. Maybe I'm missing something.

Image
I think there is a lot of talking past each other going on.

On one hand, no one is disputing the fact that the market has had some steep drawdowns since 2009. The bull market has not been a straight line upward. And, yes, literal definitions allow someone to say there was a bear market, or a correction. As a result, one might then say something like "how can we still be in the same market cycle when we experienced these correction/bear periods?"

On the other hand, folks talking about a continued cycle (as I have) are referring to index stock market valuations. While there have been drawdowns in price, the valuations have remained materially higher than historical median valuations (and I'm talking about more than CAPE; this is a pretty universal understanding across various valuation methods).

Seems like the two camps in here are kind of debating different things. Just my observation, for what that's worth
What else is there besides CAPE?

1929 and 2000 look a lot scarier than 2021.

Shiller PE Ratio

Image
Last edited by corn18 on Sat Jan 09, 2021 10:10 pm, edited 1 time in total.
Don't do something, just stand there!
j sleazy
Posts: 5
Joined: Thu Nov 26, 2020 10:53 am

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

Post by j sleazy »

3funder wrote: Tue Jan 05, 2021 2:42 pm
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!
I to use lines to analyze macro economic trends
BJJ_GUY
Posts: 531
Joined: Wed Mar 13, 2019 7:45 am

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

Post by BJJ_GUY »

corn18 wrote: Sat Jan 09, 2021 9:42 pm
BJJ_GUY wrote: Sat Jan 09, 2021 9:30 pm
corn18 wrote: Sat Jan 09, 2021 7:58 pm I'm not seeing ALL rainbows and unicorns since 2009. Maybe I'm missing something.

Image
I think there is a lot of talking past each other going on.

On one hand, no one is disputing the fact that the market has had some steep drawdowns since 2009. The bull market has not been a straight line upward. And, yes, literal definitions allow someone to say there was a bear market, or a correction. As a result, one might then say something like "how can we still be in the same market cycle when we experienced these correction/bear periods?"

On the other hand, folks talking about a continued cycle (as I have) are referring to index stock market valuations. While there have been drawdowns in price, the valuations have remained materially higher than historical median valuations (and I'm talking about more than CAPE; this is a pretty universal understanding across various valuation methods).

Seems like the two camps in here are kind of debating different things. Just my observation, for what that's worth
What else is there besides CAPE?

1929 and 2000 look a lot scarier than 2021.

Image
What is that graph you just shared?

Other methods commonly used would be Price/Revenues, Market Cap/GDP, or even using the cyclically adjusted CAPE Ratio but margin-adjusting the earnings (since there is such high variability that isn't accounted for).

All of these also have a stronger linear relationship with the corresponding 7-12 year market returns. But regardless, just the flaws exposed in the denominator of (highly variable) earnings based valuation ratios provide the logic to at least use 1-2 other methods.
User avatar
corn18
Posts: 2136
Joined: Fri May 22, 2015 6:24 am

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

Post by corn18 »

Shiller PE ratio
Don't do something, just stand there!
User avatar
QuestioningWanderer
Posts: 85
Joined: Sat Nov 07, 2020 5:48 am

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

Post by QuestioningWanderer »

BJJ_GUY wrote: Sat Jan 09, 2021 7:47 pm
QuestioningWanderer wrote: Fri Jan 08, 2021 1:28 pm
fingoals wrote: Thu Jan 07, 2021 3:50 pm Could someone explain to me the rationale behind the emphasized part of this statement from the article or point to relevant resources? Thanks!
The one reality that you can never change is that a higher-priced asset will [always - OP] produce a lower return than a lower-priced asset.
The more money has gone into an asset the less money there is leftover to go into it.
What does this mean? If you buy a stock for $100, that means the seller of that stock now has $100 in cash. There is no change in the amount of uninvested money as a result
Yes, but the seller wants to do something else with the money.
Always question status quo.
BJJ_GUY
Posts: 531
Joined: Wed Mar 13, 2019 7:45 am

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

Post by BJJ_GUY »

QuestioningWanderer wrote: Sun Jan 10, 2021 3:55 am
BJJ_GUY wrote: Sat Jan 09, 2021 7:47 pm
QuestioningWanderer wrote: Fri Jan 08, 2021 1:28 pm
fingoals wrote: Thu Jan 07, 2021 3:50 pm Could someone explain to me the rationale behind the emphasized part of this statement from the article or point to relevant resources? Thanks!
The one reality that you can never change is that a higher-priced asset will [always - OP] produce a lower return than a lower-priced asset.
The more money has gone into an asset the less money there is leftover to go into it.
What does this mean? If you buy a stock for $100, that means the seller of that stock now has $100 in cash. There is no change in the amount of uninvested money as a result
Yes, but the seller wants to do something else with the money.
How do you know what the seller wants to do with the proceeds of a sale? There's a good chance someone who sold the original stock is going to turnaround and buy a different stock. Either way, fundamentally, and factually, more buying does not result in less available capital because for each buyer there is a seller.

Perhaps I'm misunderstanding what you were trying to say. If so, I'd be curious to understand
selters
Posts: 672
Joined: Thu Feb 27, 2014 9:26 am

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

Post by selters »

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.
Why is the quantitative indicator "bull market" any more useful than other quantitative indicators? Bogleheads frown upon quantitative indicators used by technical analysts, but still use the term as if it has any degree of significance.
BJJ_GUY
Posts: 531
Joined: Wed Mar 13, 2019 7:45 am

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

Post by BJJ_GUY »

asif408 wrote: Fri Jan 08, 2021 8:46 am
striker79 wrote: Thu Jan 07, 2021 3:38 pm People can agree or disagree whether or not we are in a bubble...but I think everyone can agree that stocks are expensive as ever and that this is partly due to low interest rates, and TINA.
Disagree, your statement is only true if you are considering a mostly US stock portfolio. There are just as low or lower interest rates in Europe and Japan yet valuations are 30-50% lower over there than in the US, and compared to their historical averages valuations are not anywhere near all time highs. Yet this interest rate argument gets repeated over and over. In emerging markets valuations are half those in the US, with interest rates not much higher in many of those countries.

And if you tilt to value internationally there's a pretty strong argument that the majority of ex-US value stocks are on the cheap side, in relative and absolute terms, particularly in emerging markets. That's personally what I do. I certainly haven't heard anyone hear arguing recently that emerging markets, Europe, or Japanese stocks are expensive, or that value stocks worldwide are expensive, though I might have missed it. Most of the focus around here in on US stocks here for whatever reason. I guess they are the winner of the most recent decade's beauty contest and get most of the attention.
I appreciate you pointing out the misunderstanding regarding low interest rates warranting higher valuations. This does not account for the fact that low rates tend to correspond with low growth expectations (and other cyclical relationships that would bring down the growth side of the equation).

As for the focus on US stocks, you're right, the focus tends to be US stocks - and there are more attractively priced markets elsewhere. But to be fair, when the debate is about the markets being overvalued people do tend to think SPX instead of MSCI ACW Index. S&P 500 is even more misleading because the traditionally labeled growth sectors have driven US equity performance and consequently gained substantial market share. This change has also occurred in the global stock market where US tech names have gained substantial market share, though at lower absolute % levels.

But when the biggest stocks have extremely high valuations that continue to expand, at the same time the market share of the US stock index (or world index), this means the average valuations we're all debating are increasingly conversations being influenced by a certain segment of stocks.
LFS1234
Posts: 249
Joined: Fri Feb 08, 2019 4:13 am

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

Post by LFS1234 »

BJJ_GUY wrote: Sat Jan 09, 2021 7:47 pm
QuestioningWanderer wrote: Fri Jan 08, 2021 1:28 pm The more money has gone into an asset the less money there is leftover to go into it.
What does this mean? If you buy a stock for $100, that means the seller of that stock now has $100 in cash. There is no change in the amount of uninvested money as a result
True, but there is a reduction in the amount of money that is available from willing buyers to be put into the asset in question.

There are only three reasons to sell a stock: the seller needs the money for something else, the seller believes the stock no longer represents adequate value, or the seller is diversifying out of a concentrated position. In none of these cases would the seller reinvest the proceeds of the sale back into what just was sold.

In cases where a stock has skyrocketed, a seller might be selling for $1,000,000 stock which originally had been purchased for some tiny fraction of that. The proceeds of the stock sale will be spent on something else. The purchaser(s) on the other hand have decided to scrounge up quite a large sum of money for one of two reasons: they believe that the stock will continue to appreciate, or they are forced to buy for some reason (e.g. boss's orders, customer pressure, applicable investment policy, or applicable regulations).

In big run-ups, it is often the case that many of the selling stockholders know the company well, have an understanding of valuation, and believe it to be overvalued; while many of the new buyers are momentum players buying mainly because it is going up. At some point the momentum buyers run out of money, the momentum stops, and there are no buyers partly because there is no good reason to buy, and partly because the astronomical amount of cash needed to buy the stock at recent prices simply isn't available to purchase the stock being put up for sale.

Regarding Grantham's letters: I think they're always good reads. GMO's 7-year forecasts are based on assumptions which are shared with his readers, regarding regression to mean historical valuation parameters and also regarding inflation. One can appreciate GMO's work while arriving at different conclusions due to other views regarding those basic assumptions. Lots of wisdom is shared by people with whom one does not necessarily completely agree.
mrekvy491
Posts: 37
Joined: Wed Jul 29, 2020 10:43 am

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

Post by mrekvy491 »

Enjoyed the read, and I also do feel like things are getting a bit crazy.

I see world indices moving like a small cap stock too often. The endless new influx of (probably retail) money to the growth stocks also seem almost Ponzi-like.

Not so sure what I can do, but yes, it does feel bubbly. Won't be surprised to see the market taking a big hit.
lostdog
Posts: 3761
Joined: Thu Feb 04, 2016 2:15 pm

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

Post by lostdog »

We go from the March bottom fear to bubble talk.

Humans are silly creatures.

"No one knows nothing". -Jack Bogle
User avatar
Nicolas
Posts: 2601
Joined: Wed Aug 22, 2012 7:41 am
Location: Ashtabula, 56th and Wabasha
Contact:

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

Post by Nicolas »

That bull market ended in March 2020, we’re in a new bull market now, not even one year old.
000
Posts: 4625
Joined: Thu Jul 23, 2020 12:04 am

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

Post by 000 »

Nicolas wrote: Sun Jan 10, 2021 3:00 pm That bull market ended in March 2020, we’re in a new bull market now, not even one year old.
The pedant has arrived.
lostdog
Posts: 3761
Joined: Thu Feb 04, 2016 2:15 pm

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

Post by lostdog »

Nicolas wrote: Sun Jan 10, 2021 3:00 pm That bull market ended in March 2020, we’re in a new bull market now, not even one year old.
+1
dont_know_mind
Posts: 44
Joined: Sun Nov 22, 2020 8:14 am

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

Post by dont_know_mind »

What I find most objectionable about Grantham is his insinuation that market cycles are predictable.
That he's seen it all before and once they become over-valued, they're destined to mean revert and he's gotten it right in the past.
This is not nearly humble enough, because we don't know.
I like Bogle's thinking better, in one of his interviews on youtube (in 2014):
https://www.youtube.com/watch?v=k6ra5POdsYg
He says that all bear markets are different.
2000 was different to 2008 (which was different to 2020). Anyone who says they've seen it all before is BSing.

Just to screw up the value crowd, I think it would be funny if the SP500 CAPE peaked at 60 or so. Really, Grantham offers no advice with the mean reversion/market timing strategy other than to hold onto the toilet seat, because you'll be right in the long term. New investors are not aware of the risk in that if they elect to market-time, the market may well peak much above what they thought was possible and they may end up capitulating/deploying their market timing cash at the relative top, which is they will buy high, sell low, which is what they were trying to avoid. Doh!

No one knows except after the fact whether valuations are justified or not. I remember talking to a woman who sold out of NYC real estate in 1998 as she thought it was over-priced. When I spoke to her recently (2020, post Covid), she was still waiting for it to mean revert, back to 300k. The current market value of a comparable place is 2M. I thought, yep, good luck. Same applies to the SP500, some people still think it will mean revert back to 1000 sometime in the future. Maybe it will for them. Hopefuly, they have a reasonable plan that covers all likely scenarios.
Last edited by dont_know_mind on Mon Jan 11, 2021 4:53 am, edited 1 time in total.
dont_know_mind
Posts: 44
Joined: Sun Nov 22, 2020 8:14 am

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

Post by dont_know_mind »

000 wrote: Sun Jan 10, 2021 3:14 pm
Nicolas wrote: Sun Jan 10, 2021 3:00 pm That bull market ended in March 2020, we’re in a new bull market now, not even one year old.
The pedant has arrived.
The counterpoint to Grantham's arguments are:
1.In terms of excess capacity and under-utilization of resources ( as measured by unemployment and resource prices), this appears to have reset.
2. As monetary conditions are arguably looser than 2000 and the Fed has said that they will keep interest rates low until inflation overshoots the target range, why would valuations not surpass the previous peak in 2000 ?

I am not saying that Grantham is right or that the counter-point is correct but it's not obvious to me that Grantham is right.
Anon9001
Posts: 1303
Joined: Fri Dec 20, 2019 9:28 am
Location: भारत

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

Post by Anon9001 »

Looks like my home bias is going to pay off well if GMO is correct. I live in EM country.
Land/Real Estate:88.3% Equities:5.4% Fixed Income:3.9% Gold:1.7% Cryptocurrency:0.4%
000
Posts: 4625
Joined: Thu Jul 23, 2020 12:04 am

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

Post by 000 »

dont_know_mind wrote: Mon Jan 11, 2021 4:51 am it's not obvious to me that Grantham is right.
Oh I certainly agree with you on that. And I don't think completely sitting out bubbles is the best strategy. Better to ride em up and rebalance I think.
User avatar
willthrill81
Posts: 23478
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

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

Post by willthrill81 »

BJJ_GUY wrote: Sun Jan 10, 2021 6:01 am
asif408 wrote: Fri Jan 08, 2021 8:46 am
striker79 wrote: Thu Jan 07, 2021 3:38 pm People can agree or disagree whether or not we are in a bubble...but I think everyone can agree that stocks are expensive as ever and that this is partly due to low interest rates, and TINA.
Disagree, your statement is only true if you are considering a mostly US stock portfolio. There are just as low or lower interest rates in Europe and Japan yet valuations are 30-50% lower over there than in the US, and compared to their historical averages valuations are not anywhere near all time highs. Yet this interest rate argument gets repeated over and over. In emerging markets valuations are half those in the US, with interest rates not much higher in many of those countries.

And if you tilt to value internationally there's a pretty strong argument that the majority of ex-US value stocks are on the cheap side, in relative and absolute terms, particularly in emerging markets. That's personally what I do. I certainly haven't heard anyone hear arguing recently that emerging markets, Europe, or Japanese stocks are expensive, or that value stocks worldwide are expensive, though I might have missed it. Most of the focus around here in on US stocks here for whatever reason. I guess they are the winner of the most recent decade's beauty contest and get most of the attention.
I appreciate you pointing out the misunderstanding regarding low interest rates warranting higher valuations. This does not account for the fact that low rates tend to correspond with low growth expectations (and other cyclical relationships that would bring down the growth side of the equation).
Lowering interest rates over the last ~40 years seem to correspond pretty well with the rise in valuations. CAPE reached its lowest levels since the Great Depression in the early 1980s, when the Fed funds rate was pushing 20%, and both have moving mostly inversely to each other ever since. Maybe that's just correlation and not causation, but it stands to reason that stock valuations should be lower when T-bills are paying 16% instead of nearly zero.
“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
JBTX
Posts: 7558
Joined: Wed Jul 26, 2017 12:46 pm

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

Post by JBTX »

000 wrote: Mon Jan 11, 2021 6:56 pm
dont_know_mind wrote: Mon Jan 11, 2021 4:51 am it's not obvious to me that Grantham is right.
Oh I certainly agree with you on that. And I don't think completely sitting out bubbles is the best strategy. Better to ride em up and rebalance I think.
I always enjoy reading Grantham. He presents a credible and plausible case. Note I didn't say "probable", because that is impossible to ascertain.

People like to dogpile on him, but I read him, and take what he says seriously. That doesn't mean I do exactly what he says. But he helps me evaluate the risk involved, which does inform what I do.

While he has been in the wrong side of the bull market for most of the last decade, he wasn't saying we were in an extreme bubble, like he is saying now. And he has been pretty good about calling bubbles, even though at times he is years too early.

His downfall is his inability to predict fed policy and interest rates. He has always had less than kind words for the fed, but hasn't been able to predict the impact of falling rates on stocks. However, with rates very low, it isn't likely he will make that error again, because rates just can't go much lower.

My best guess would we will still see a run up and inflation in multiples before things come crashing back down. That could be months or years. But he could be right in that it will be sooner rather than later.
Mrmetalpole
Posts: 57
Joined: Tue May 15, 2018 6:12 am

Grantham piece on market bubble

Post by Mrmetalpole »

[Merged into existing discussion -- mod oldcomputerguy]

https://www.gmo.com/americas/research-l ... ast-dance/

Another bubble call, but I found this article interesting
burritoLover
Posts: 598
Joined: Sun Jul 05, 2020 12:13 pm

Re: Grantham piece on market bubble

Post by burritoLover »

Well, if he's right, I buy stocks on sale and if he's wrong, I make money. Win-win either way.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
User avatar
David Jay
Posts: 10139
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Grantham piece on market bubble

Post by David Jay »

Grantham on BH: https://www.google.com/search?sitesearc ... q=Grantham

He has called all 37 of the last 4 downturns in the market.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
Robot Monster
Posts: 1913
Joined: Sun May 05, 2019 11:23 am
Location: New York

Re: Grantham piece on market bubble

Post by Robot Monster »

If only these prediction dudes would promise to eat a shoe if they're wrong, or do a thousand naked jumping jacks on top of their house, or something.
“I delight in what I fear.” ― Shirley Jackson
HenrySouthernCal
Posts: 61
Joined: Thu Dec 21, 2017 11:33 pm

Re: Grantham piece on market bubble

Post by HenrySouthernCal »

We at GMO got entirely out of Japan in 1987, when it was over 40% of the EAFE benchmark and selling at over 40x earnings, against a previous all-time high of 25x. It seemed prudent to exit at the time, but for three years we underperformed painfully as the Japanese market went to 65x earnings on its way to becoming over 60% of the benchmark! But we also stayed completely out for three years after the top and ultimately made good money on the round trip.

Similarly, in late 1997, as the S&P 500 passed its previous 1929 peak of 21x earnings, we rapidly sold down our discretionary U.S. equity positions then watched in horror as the market went to 35x on rising earnings.
Based on his history of calling top too early (by 3 years in Japan bubble, 2.5 years in U.S. tech bubble late 1990s to early 2000), it makes me think U.S. stock market has 2-3 more years of good time.
2903490324
Posts: 20
Joined: Mon Aug 10, 2020 8:54 am

Re: Grantham piece on market bubble

Post by 2903490324 »

HenrySouthernCal wrote: Sat Jan 16, 2021 6:07 pm it makes me think U.S. stock market has 2-3 more years of good time.
Bet someone said the same thing 2-3 years ago :P
User avatar
birdog
Posts: 1226
Joined: Fri Apr 07, 2017 1:35 pm
Location: God's Country

Re: Grantham piece on market bubble

Post by birdog »

Didn’t he basically say the same thing in 2014?

https://finance.yahoo.com/blogs/daily-t ... 07244.html
Mrmetalpole
Posts: 57
Joined: Tue May 15, 2018 6:12 am

Re: Grantham piece on market bubble

Post by Mrmetalpole »

2903490324 wrote: Sat Jan 16, 2021 6:08 pm
HenrySouthernCal wrote: Sat Jan 16, 2021 6:07 pm it makes me think U.S. stock market has 2-3 more years of good time.
Bet someone said the same thing 2-3 years ago :P
birdog wrote: Sun Jan 17, 2021 8:27 am Didn’t he basically say the same thing in 2014?

https://finance.yahoo.com/blogs/daily-t ... 07244.html
True he's been a bear, but this article says bubble has a long way to go (2014)...Fast forward to 2021...I don't think we'll have a bear market but a correction wouldn't surprise me.
invest4
Posts: 305
Joined: Wed Apr 24, 2019 2:19 am

Re: Grantham piece on market bubble

Post by invest4 »

Personally,I believe valuations are high (largely on the basis of CAPE and the Buffet indicator), despite the justifications provided including recent analysis and comments from Schiller himself, etc. Alas, whether one should take action, when, and what that should be is a terrible (most of us would likely say futile) struggle. For those who would actively take a more defensive posture, some of the 'usual suspects' are also not exceptionally appealing in that they possess their own risks due to various factors...looking at you bonds.

To that extent, I had recently begun curtailing new investments in equities in favor of lower risk offerings (stable value as an alternative to adding more in BND), while maintaining my AA of 60/40 with some allowance for drift in regard to rebalancing (both ways).

Of course, I don't know how the future will unfold...but enjoying the show *munches popcorn*
drumboy256
Posts: 53
Joined: Sat Jun 06, 2020 2:21 pm

Re: Grantham piece on market bubble

Post by drumboy256 »

My biggest mistake was not putting money in during the coronacrash last year. Won't be making that mistake again.
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson
Always passive
Posts: 802
Joined: Fri Apr 14, 2017 4:25 am
Location: Israel

Re: Grantham piece on market bubble

Post by Always passive »

He is NOT recommending to get out of the market, rather to get out of growth and invest in value and emerging markets. He is not alone. If valuations mean anything, he may be right.
User avatar
corn18
Posts: 2136
Joined: Fri May 22, 2015 6:24 am

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

Post by corn18 »

I thought we were supposed to buy the whole haystack? Did something change in the wiki?
Don't do something, just stand there!
fennewaldaj
Posts: 1070
Joined: Sun Oct 22, 2017 11:30 pm

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

Post by fennewaldaj »

I tend to expect another version of the internet bubble from ~2000 (though perhaps less severe). But my normal allocation is 50% ex US and pretty underweight US growth stocks so I am prepared when and if it happens.
User avatar
beernutz
Posts: 578
Joined: Sun May 31, 2015 12:50 pm

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

Post by beernutz »

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.
Don't you ever tire of this constant negativity?
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. --Will Rogers
User avatar
willthrill81
Posts: 23478
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

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

Post by willthrill81 »

corn18 wrote: Sun Jan 17, 2021 1:00 pm I thought we were supposed to buy the whole haystack? Did something change in the wiki?
But which haystack(s) to buy? That's the rub. Even Bogle himself didn't think that all haystacks were created equal.
“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
User avatar
corn18
Posts: 2136
Joined: Fri May 22, 2015 6:24 am

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

Post by corn18 »

willthrill81 wrote: Sun Jan 17, 2021 3:17 pm
corn18 wrote: Sun Jan 17, 2021 1:00 pm I thought we were supposed to buy the whole haystack? Did something change in the wiki?
But which haystack(s) to buy? That's the rub. Even Bogle himself didn't think that all haystacks were created equal.
Total US stock, total international stock, total bond. What other haystacks are there?
Don't do something, just stand there!
grettman
Posts: 683
Joined: Mon Sep 29, 2014 1:47 pm

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

Post by grettman »

beernutz wrote: Sun Jan 17, 2021 3:04 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.
Don't you ever tire of this constant negativity?

Hehe. This OP does this all the time! Like tossing a ball of yarn for us “cats” to play with. He drops it and hides to watch the forum bat it around.
checkyourmath
Posts: 352
Joined: Wed Nov 18, 2020 12:46 pm

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

Post by checkyourmath »

What was the market cap at the peak of the dotcom bubble? It doesn't take a rocket scientist to know the breaking of human nature. The stock market returns 7 percent annually so do bubbles. We are right on pace from the peak of the dotcom bubble to repeat our past joy. The higher they climb the harder they fall. GDP ain't going anywhere fast.
User avatar
willthrill81
Posts: 23478
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

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

Post by willthrill81 »

corn18 wrote: Sun Jan 17, 2021 4:36 pm
willthrill81 wrote: Sun Jan 17, 2021 3:17 pm
corn18 wrote: Sun Jan 17, 2021 1:00 pm I thought we were supposed to buy the whole haystack? Did something change in the wiki?
But which haystack(s) to buy? That's the rub. Even Bogle himself didn't think that all haystacks were created equal.
Total US stock, total international stock, total bond. What other haystacks are there?
The U.S./ex-U.S. split is definitely one way to 'split' the haystacks. A factor investor would say that 'growth/value' and 'large/small' are other ways to split the haystacks.
“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
deltaneutral83
Posts: 1810
Joined: Tue Mar 07, 2017 4:25 pm

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

Post by deltaneutral83 »

The US market has returned 4.42% real since Y2k when we had stratospheric valuations (divs reinvested). Two very, very big bears and the second biggest bear in modern American history and we still did ok over 21 years and those dates are cherry picked to the downside.
User avatar
willthrill81
Posts: 23478
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

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

Post by willthrill81 »

deltaneutral83 wrote: Sun Jan 17, 2021 7:20 pm The US market has returned 4.42% real since Y2k when we had stratospheric valuations (divs reinvested). Two very, very big bears and the second biggest bear in modern American history and we still did ok over 21 years and those dates are cherry picked to the downside.
The key there is 'U.S. market'. Ex-U.S. stock returned 1.87% real since the year 2000, well below what intermediate-term Treasuries returned over the same period.
“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
Candor
Posts: 403
Joined: Sat May 28, 2011 4:25 pm

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

Post by Candor »

grettman wrote: Sun Jan 17, 2021 4:56 pm
beernutz wrote: Sun Jan 17, 2021 3:04 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.
Don't you ever tire of this constant negativity?

Hehe. This OP does this all the time! Like tossing a ball of yarn for us “cats” to play with. He drops it and hides to watch the forum bat it around.
Good analogy and I think there may be little catnip in the middle of the yarn to really get us going. He/she rarely if ever responds to the push back on the many "balls of yarn'' thrown our way so it seems to be just textbook trolling imo.
Time is your friend, impulse is your enemy. - John C. Bogle
User avatar
birdog
Posts: 1226
Joined: Fri Apr 07, 2017 1:35 pm
Location: God's Country

Re: Grantham piece on market bubble

Post by birdog »

Mrmetalpole wrote: Sun Jan 17, 2021 8:40 am
2903490324 wrote: Sat Jan 16, 2021 6:08 pm
HenrySouthernCal wrote: Sat Jan 16, 2021 6:07 pm it makes me think U.S. stock market has 2-3 more years of good time.
Bet someone said the same thing 2-3 years ago :P
birdog wrote: Sun Jan 17, 2021 8:27 am Didn’t he basically say the same thing in 2014?

https://finance.yahoo.com/blogs/daily-t ... 07244.html
True he's been a bear, but this article says bubble has a long way to go (2014)...Fast forward to 2021...I don't think we'll have a bear market but a correction wouldn't surprise me.
Fast forward to 2021? The article says a year or two. I think after seven years we can safely mark the prediction down as false.
User avatar
Brianmcg321
Posts: 1297
Joined: Mon Jul 15, 2019 8:23 am

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

Post by Brianmcg321 »

Nicolas wrote: Sun Jan 10, 2021 3:00 pm That bull market ended in March 2020, we’re in a new bull market now, not even one year old.
Actually, it ended in 2018. The one after that ended in March 2020.
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.
User avatar
whodidntante
Posts: 9786
Joined: Thu Jan 21, 2016 11:11 pm
Location: outside the echo chamber

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

Post by whodidntante »

Jack Bogle timed the market when he believed the expected returns of bonds were higher than stocks. I don't see anything like that here, so it is not yet appropriate for a Boglehead to time the market. Stay tuned. Maybe we'll all need to sell in a few months. :wink:
klaus14
Posts: 668
Joined: Sun Nov 25, 2018 7:43 pm

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

Post by klaus14 »

asif408 wrote: Fri Jan 08, 2021 8:46 am
striker79 wrote: Thu Jan 07, 2021 3:38 pm People can agree or disagree whether or not we are in a bubble...but I think everyone can agree that stocks are expensive as ever and that this is partly due to low interest rates, and TINA.
Disagree, your statement is only true if you are considering a mostly US stock portfolio. There are just as low or lower interest rates in Europe and Japan yet valuations are 30-50% lower over there than in the US, and compared to their historical averages valuations are not anywhere near all time highs. Yet this interest rate argument gets repeated over and over. In emerging markets valuations are half those in the US, with interest rates not much higher in many of those countries.

And if you tilt to value internationally there's a pretty strong argument that the majority of ex-US value stocks are on the cheap side, in relative and absolute terms, particularly in emerging markets. That's personally what I do. I certainly haven't heard anyone hear arguing recently that emerging markets, Europe, or Japanese stocks are expensive, or that value stocks worldwide are expensive, though I might have missed it. Most of the focus around here in on US stocks here for whatever reason. I guess they are the winner of the most recent decade's beauty contest and get most of the attention.
low rate matters most for growth stocks. US have a lot of growth stocks compared to other developed countries. If you look at PEG ratios, EAFE is overvalued compared to US:
viewtopic.php?f=10&t=333474
asif408
Posts: 2268
Joined: Sun Mar 02, 2014 8:34 am
Location: Florida

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

Post by asif408 »

klaus14 wrote: Fri Jan 22, 2021 2:40 pm low rate matters most for growth stocks. US have a lot of growth stocks compared to other developed countries. If you look at PEG ratios, EAFE is overvalued compared to US:
viewtopic.php?f=10&t=333474
And from the link in your link:
The PEG ratio's validity is particularly questionable when used to compare companies expecting high growth with those expecting low-growth, or to compare companies with high P/E with those with a low P/E. It is more apt to be considered when comparing so-called growth companies (those growing earnings significantly faster than the market).
That pretty much defines the difference between EAFE and US, EAFE has a lot more companies in sectors with low P/Es expecting low growth (value companies), which US has a lot more companies in sectors with high P/Es expecting high growth (growth companies). Not an apples to apples comparison unless you compare, say, US growth to EAFE growth.
PEG calculations based on five-year growth estimates are especially subject to over-optimistic growth projections by analysts, which on average are not achieved, and to discounting the risk of outright loss of invested capital.
Another reason not to use a metric that uses forward expectations in the numerator or the denominator.

If you can point to any metrics that don't use forward estimates in their calculation that indicate EAFE stocks are overvalued compared to US stocks I'd love to see them. I haven't found one personally (TTM P/E, CAPE, P/S, P/CF, dividend yield, etc.) that say EAFE stocks are overvalued or even similarly valued to US stocks.
klaus14
Posts: 668
Joined: Sun Nov 25, 2018 7:43 pm

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

Post by klaus14 »

asif408 wrote: Fri Jan 22, 2021 3:34 pm
klaus14 wrote: Fri Jan 22, 2021 2:40 pm low rate matters most for growth stocks. US have a lot of growth stocks compared to other developed countries. If you look at PEG ratios, EAFE is overvalued compared to US:
viewtopic.php?f=10&t=333474
And from the link in your link:
The PEG ratio's validity is particularly questionable when used to compare companies expecting high growth with those expecting low-growth, or to compare companies with high P/E with those with a low P/E. It is more apt to be considered when comparing so-called growth companies (those growing earnings significantly faster than the market).
That pretty much defines the difference between EAFE and US, EAFE has a lot more companies in sectors with low P/Es expecting low growth (value companies), which US has a lot more companies in sectors with high P/Es expecting high growth (growth companies). Not an apples to apples comparison unless you compare, say, US growth to EAFE growth.
PEG calculations based on five-year growth estimates are especially subject to over-optimistic growth projections by analysts, which on average are not achieved, and to discounting the risk of outright loss of invested capital.
Another reason not to use a metric that uses forward expectations in the numerator or the denominator.

If you can point to any metrics that don't use forward estimates in their calculation that indicate EAFE stocks are overvalued compared to US stocks I'd love to see them. I haven't found one personally (TTM P/E, CAPE, P/S, P/CF, dividend yield, etc.) that say EAFE stocks are overvalued or even similarly valued to US stocks.
You have a point. But still, backward looking metrics don't capture the fact that US will grow faster than EAFE. (tech + demographics)
We just don't know how much. So maybe reduce the LTEG of US a bit to correct optimistic analysts. Here is the latest calculation i had:

Forward PE, LTEG, PEG
SP500 23, 21, 1.1
EAFE 17, 8, 2.1

There is a big difference in LTEG. So even if you think half of it will realize, it may still justify the valuation difference.
And analysts are not that wrong historically. On average, their forward EPS estimates are just 2% optimistic. (Source)

PEG sources:
https://www.yardeni.com/pub/mscipe.pdf
https://www.yardeni.com/pub/msciltegsteg.pdf
Post Reply