The new and bigger irrational exuberance

[jhsu802701]

I never imagined that I'd ever again witness anything like the Dot Con bubble of 1999-2000. I was wrong, because there's even more irrational exuberance today, and it's flying in the face of a much weaker economy.

No wonder Warren Buffett and Charlie Munger have been underperforming. No wonder value investing has been underperforming. No wonder so many people are insisting that Berkshire Hathaway and value investing have jumped the shark. Of course, I disagree.

There's no denying that US stocks are in a bubble. Stocks like Apple, Microsoft, Facebook, and Amazon are the new Nifty Fifty. Tesla is the new Dot Com. Even the broader indices (like the DJIA and S&P 500) are selling for historically high multiples. But all this is peanuts compared to Hertz.

The most irrational part of this stock market bubble was Hertz stock, which became a 10-bagger AFTER Hertz filed for bankruptcy. That's Not Exactly rational. If Hertz isn't an example of a bubble jumping the shark, then I don't know what is.

But the bubble isn't limited to US stocks. US bonds with microscopic yields (lowest in the history of the nation) that don't even cover current inflation are an even bigger bubble. At the height of the Volcker credit squeeze in the early 1980s, there were 30-year Treasury bonds selling for as little as 50 cents on the dollar. The next bear market in bonds will dwarf that one. Even a 1-percentage point increase in interest rates would decimate the values of long-term bonds. Most bubbles at least provide a hollow promise of hitting the jackpot. This bond bubble is the most idiotic in the history of the world, because it doesn't even offer that.

Bitcoin is yet another bubble. Its volatility effectively disqualifies it from being used as currency. In fact, every expenditure of cryptocurrency is a taxable event due to that volatility. It's really just another speculative football. Cryptocurrencies have a short track record, which means that we don't know what can go wrong.

In spite of these bubbles, there's more value out there than has been the case in decades. Unlike the US stock market, foreign stock markets are cheap, especially Asia. As an added bonus, the Big Mac Index shows nearly every currency to be undervalued against the US dollar, especially Asian currencies.

In spite of the cheapness of international stocks and currencies and the frothiness of US stocks, everyone assumes that international is riskier than domestic. People think they're missing out on Bitcoin and Tesla, but Japanese and emerging markets stocks aren't even on their radar. People think that they're playing it safe by buying bonds at a time when they're Certificates of Guaranteed Confiscation and just as risky as stocks were in 1929.

[livesoft]

As long as there is a Greater Fool out there to sell to, then Let's Party!

[Shallowpockets]

So, are you investing now in these international stocks right now? I can see your point but unless you are taking action, it’s just a rant.

[jhsu802701]

So, are you investing now in these international stocks right now? I can see your point but unless you are taking action, it’s just a rant.

Yes, I am aggressively bullish on international stocks. The international stock markets are so much cheaper than the US stock market that there's no point in investing in any US stocks (except Berkshire Hathaway).

[TheTimeLord]

So, are you investing now in these international stocks right now? I can see your point but unless you are taking action, it’s just a rant.

Yes, I am aggressively bullish on international stocks. The international stock markets are so much cheaper than the US stock market that there's no point in investing in any US stocks (except Berkshire Hathaway).

So the U.S. in an epic bubble but the only U.S. stock you want to buy is levered directly to the U.S. economy and holds large positions in Apple and Snowflake? Okay then.

[Firemenot]

I don’t think there’s any basis for saying it’s BIGGER than in 1999/2000. Were you an active investor back then? The level of exuberance and valuation stretch then were more.

[dmcmahon]

At the root of all that is the ZIRP being pursued by central bankers. Couple that with record deficits, which guarantee more supply of bonds, and also lock in a budget problem should rates rise, because any borrowing done at the short end has to be rolled at higher rates. Taxes cannot square this, anyone willing to do the analysis has known for years that even 100% tax rates can’t close the unfunded liabilities and that was before recent events. And it’s also obvious that no one would bother working or saving if they faced a 100% rate.

The unfunded liability problem has been fretted about for at least 20 years. Japan’s had the ZIRP problem for 30 years, outright negative rates have been seen in Europe since the 2008 crisis. About the only thing that has changed is that they dusted off the 2008 playbook for the 2020 crisis, and even before that attempts to normalize rates in 2018 were met with market tantrums that forced them to back off.

Assuming you believe even half of all that, what’s actionable? You still have to save for the future. If the only vehicles available are all in bubbles, including cash in dollars, then what? International stocks do not look like a safe haven, especially in places where the rule of law is questionable, and I include China in that because it’s a totalitarian country. This pretty much leaves you hard assets. Even then, you face a tax-on-inflation problem where you could have your savings diminished in a different way than outright inflation.

I do not completely agree that those big tech stocks are in bubbles. The economy is undergoing a shift that was accelerated by the pandemic. Those big tech companies are the winners, for now. So given a menu of investment choices all of which involve potential loss to inflation, taxes, and popping bubbles, I just pick some from each asset class and hope enough survives to meet my expenses in retirement.

[spanky123]

I do not completely agree that those big tech stocks are in bubbles. The economy is undergoing a shift that was accelerated by the pandemic. Those big tech companies are the winners, for now. So given a menu of investment choices all of which involve potential loss to inflation, taxes, and popping bubbles, I just pick some from each asset class and hope enough survives to meet my expenses in retirement.

The tech stocks, i.e., Tesla, are not overvalued?

[dmcmahon]

I do not completely agree that those big tech stocks are in bubbles. The economy is undergoing a shift that was accelerated by the pandemic. Those big tech companies are the winners, for now. So given a menu of investment choices all of which involve potential loss to inflation, taxes, and popping bubbles, I just pick some from each asset class and hope enough survives to meet my expenses in retirement.

The tech stocks, i.e., Tesla, are not overvalued?

I think TSLA is absurdly overvalued. But the biggest components of the S&P that are commonly thought of as tech are less so, e.g. MSFT, AAPL, GOOG. I’m not happy that TSLA has joined their ranks in the top 10, but it’s an outlier. I had AMZN in mind when I wrote what I did.

[an_asker]

I don’t think there’s any basis for saying it’s BIGGER than in 1999/2000. Were you an active investor back then? The level of exuberance and valuation stretch then were more.

To be honest, I would say this is about the same. I lost a boatload back then. But have learned my lesson ... I think.

Here's a data point. Remember the Jacob Internet Fund? Well, it returned > 100% in 2020 as well

[Marseille07]

Here's a data point. Remember the Jacob Internet Fund? Well, it returned > 100% in 2020 as well

No? Tell me more. My cash wants to discuss businesses with this fund.

[ResearchMed]

I don’t think there’s any basis for saying it’s BIGGER than in 1999/2000. Were you an active investor back then? The level of exuberance and valuation stretch then were more.

Back then, I remember a lot of "concerns", including Y2K.
But I don't remember people thinking... saying... "We're (all) gonna die!"

Oh, wait, some ARE dying now, of COVID. And many more will continue to die.
I can't help but assume that there is some tamping down of "the market" due to the pandemic.

The market may be judged "high" by some, but I'm not sensing a huge level of "exuberance" these days. Maybe that's just those of us who are older and more vulnerable?

RM

[an_asker]

Here's a data point. Remember the Jacob Internet Fund? Well, it returned > 100% in 2020 as well

No? Tell me more. My cash wants to discuss businesses with this fund.

[putting on my John McEnroe hat]: You can't be serious!!

Someone posted this link on these forums earlier this weekend. There are a whole host of funds that went over 100% for 2020!! Enjoy!

There is a crypto etf that leads the pack at 400+%!

[Marseille07]

[putting on my John McEnroe hat]: You can't be serious!!

Someone posted this link on these forums earlier this weekend. There are a whole host of funds that went over 100% for 2020!! Enjoy!

There is a crypto etf that leads the pack at 400+%!

I was joking of course. I do see ARK fund entries though, quite impressive stuff.

[an_asker]

[putting on my John McEnroe hat]: You can't be serious!!

Someone posted this link on these forums earlier this weekend. There are a whole host of funds that went over 100% for 2020!! Enjoy!

There is a crypto etf that leads the pack at 400+%!

I was joking of course. I do see ARK fund entries though, quite impressive stuff.

One can never tell online lol!

I might get one share apiece of the four main ARKs.

[JoMoney]

*shrug* Valuations are high, but I don't know that its irrational. If interest rates stay low, stocks (especially growth stocks) look a whole lot more appealing than dollars or bonds denominated in dollars paying negative real yields.

[Dead Man Walking]

At the root of all that is the ZIRP being pursued by central bankers. Couple that with record deficits, which guarantee more supply of bonds, and also lock in a budget problem should rates rise, because any borrowing done at the short end has to be rolled at higher rates. Taxes cannot square this, anyone willing to do the analysis has known for years that even 100% tax rates can’t close the unfunded liabilities and that was before recent events. And it’s also obvious that no one would bother working or saving if they faced a 100% rate.

The unfunded liability problem has been fretted about for at least 20 years. Japan’s had the ZIRP problem for 30 years, outright negative rates have been seen in Europe since the 2008 crisis. About the only thing that has changed is that they dusted off the 2008 playbook for the 2020 crisis, and even before that attempts to normalize rates in 2018 were met with market tantrums that forced them to back off.

Assuming you believe even half of all that, what’s actionable? You still have to save for the future. If the only vehicles available are all in bubbles, including cash in dollars, then what? International stocks do not look like a safe haven, especially in places where the rule of law is questionable, and I include China in that because it’s a totalitarian country. This pretty much leaves you hard assets. Even then, you face a tax-on-inflation problem where you could have your savings diminished in a different way than outright inflation.

I do not completely agree that those big tech stocks are in bubbles. The economy is undergoing a shift that was accelerated by the pandemic. Those big tech companies are the winners, for now. So given a menu of investment choices all of which involve potential loss to inflation, taxes, and popping bubbles, I just pick some from each asset class and hope enough survives to meet my expenses in retirement.

The ZIRP being pushed by central bankers forces investors to buy equities. As you pointed out, there is no way interest rates can rise dramatically without having devastating consequences for government debt. When I retired 20 years ago, I assumed that tax rates would have to increase to pay for deficit spending; consequently, I did Roth conversions. What a poor assumption that was! My tax rate has been cut on both the federal and state levels.

DMW

[flyingaway]

I don’t think there’s any basis for saying it’s BIGGER than in 1999/2000. Were you an active investor back then? The level of exuberance and valuation stretch then were more.

To be honest, I would say this is about the same. I lost a boatload back then. But have learned my lesson ... I think.

Here's a data point. Remember the Jacob Internet Fund? Well, it returned > 100% in 2020 as well

I am very much interested in what lesson(s) you learned and what actions can be taken.

I believe that we are in a bubble time, but I don't know what to do. As the OP stated, stocks are in a bubble, bonds are in a bubble, so I don't know where to go. (I have 20% of my stocks in international, but I believe every time there was a downturn, international stocks were down more regardless of their current valuation).

[Wanderingwheelz]

I don’t think there’s any basis for saying it’s BIGGER than in 1999/2000. Were you an active investor back then? The level of exuberance and valuation stretch then were more.

Back then, I remember a lot of "concerns", including Y2K.
But I don't remember people thinking... saying... "We're (all) gonna die!"

Oh, wait, some ARE dying now, of COVID. And many more will continue to die.
I can't help but assume that there is some tamping down of "the market" due to the pandemic.

The market may be judged "high" by some, but I'm not sensing a huge level of "exuberance" these days. Maybe that's just those of us who are older and more vulnerable?

RM

If you’re not seeing signs of exuberance, I’d suggest first removing the blindfold.

[TheTimeLord]

I don’t think there’s any basis for saying it’s BIGGER than in 1999/2000. Were you an active investor back then? The level of exuberance and valuation stretch then were more.

Back then, I remember a lot of "concerns", including Y2K.
But I don't remember people thinking... saying... "We're (all) gonna die!"

Oh, wait, some ARE dying now, of COVID. And many more will continue to die.
I can't help but assume that there is some tamping down of "the market" due to the pandemic.

The market may be judged "high" by some, but I'm not sensing a huge level of "exuberance" these days. Maybe that's just those of us who are older and more vulnerable?

RM

If you’re not seeing signs of exuberance, I’d suggest first removing the blindfold.

I guess I am in the blindfold camp unless someone can explain to me why bonds or cash are less risky and overvalued than stocks.

[lostdog]

I don’t think there’s any basis for saying it’s BIGGER than in 1999/2000. Were you an active investor back then? The level of exuberance and valuation stretch then were more.

Back then, I remember a lot of "concerns", including Y2K.
But I don't remember people thinking... saying... "We're (all) gonna die!"

Oh, wait, some ARE dying now, of COVID. And many more will continue to die.
I can't help but assume that there is some tamping down of "the market" due to the pandemic.

The market may be judged "high" by some, but I'm not sensing a huge level of "exuberance" these days. Maybe that's just those of us who are older and more vulnerable?

RM

If you’re not seeing signs of exuberance, I’d suggest first removing the blindfold.

I guess I am in the blindfold camp unless someone can explain to me why bonds or cash are less risky and overvalued than stocks.

+1

[lostdog]

From what I gathered from the dotcom bubble there were companies on paper that didn't even exist yet and people were throwing money at just ideas.

I think the bears are looking for another excuse.

Where else can we invest our money to keep up with inflation?

[Wanderingwheelz]

I don’t think there’s any basis for saying it’s BIGGER than in 1999/2000. Were you an active investor back then? The level of exuberance and valuation stretch then were more.

Back then, I remember a lot of "concerns", including Y2K.
But I don't remember people thinking... saying... "We're (all) gonna die!"

Oh, wait, some ARE dying now, of COVID. And many more will continue to die.
I can't help but assume that there is some tamping down of "the market" due to the pandemic.

The market may be judged "high" by some, but I'm not sensing a huge level of "exuberance" these days. Maybe that's just those of us who are older and more vulnerable?

RM

If you’re not seeing signs of exuberance, I’d suggest first removing the blindfold.

I guess I am in the blindfold camp unless someone can explain to me why bonds or cash are less risky and overvalued than stocks.

Perhaps you weren’t living through the dotcom bubble as an investor. I had a double whammy, since I was an investor and a financial advisor to boot. I can’t imagine how anyone who lived through that doesn’t see similarities today.

Bonds and cash are risky if that’s how you perceive them and you also know what the next big move in interest rates will be. I do not, so I don’t invest my money as if I do.

[flyingaway]

I don’t think there’s any basis for saying it’s BIGGER than in 1999/2000. Were you an active investor back then? The level of exuberance and valuation stretch then were more.

Back then, I remember a lot of "concerns", including Y2K.
But I don't remember people thinking... saying... "We're (all) gonna die!"

Oh, wait, some ARE dying now, of COVID. And many more will continue to die.
I can't help but assume that there is some tamping down of "the market" due to the pandemic.

The market may be judged "high" by some, but I'm not sensing a huge level of "exuberance" these days. Maybe that's just those of us who are older and more vulnerable?

RM

If you’re not seeing signs of exuberance, I’d suggest first removing the blindfold.

I guess I am in the blindfold camp unless someone can explain to me why bonds or cash are less risky and overvalued than stocks.

Bonds or cash are less risky if there is a crash, which is the bubble thing that we are talking about.

[Ray_McKigney]

https://www.irishtimes.com/business/per ... -1.4433983

"...at this point, despite the risks and the high Cape ratios, stock market valuations may not be as absurd as some people think.”

- Robert "Of All People" Schiller

[lostdog]

I don’t think there’s any basis for saying it’s BIGGER than in 1999/2000. Were you an active investor back then? The level of exuberance and valuation stretch then were more.

Back then, I remember a lot of "concerns", including Y2K.
But I don't remember people thinking... saying... "We're (all) gonna die!"

Oh, wait, some ARE dying now, of COVID. And many more will continue to die.
I can't help but assume that there is some tamping down of "the market" due to the pandemic.

The market may be judged "high" by some, but I'm not sensing a huge level of "exuberance" these days. Maybe that's just those of us who are older and more vulnerable?

RM

If you’re not seeing signs of exuberance, I’d suggest first removing the blindfold.

I guess I am in the blindfold camp unless someone can explain to me why bonds or cash are less risky and overvalued than stocks.

Perhaps you weren’t living through the dotcom bubble as an investor. I had a double whammy, since I was an investor and a financial advisor to boot. I can’t imagine how anyone who lived through that doesn’t see similarities today.

Bonds and cash are risky if that’s how you perceive them and you also know what the next big move in interest rates will be. I do not, so I don’t invest my money as if I do.

Are you taking action?

[eye.surgeon]

I never imagined that I'd ever again witness anything like the Dot Con bubble of 1999-2000. I was wrong, because there's even more irrational exuberance today, and it's flying in the face of a much weaker economy.

You also advised in April 2020 to get out of large caps and cryptocurrencies . How'd that work out for you.

[spanky123]

....

Where else can we invest our money to keep up with inflation?

Precious metals
Commodities
TIPS
Stocks
Cryptocurrencies

[Marseille07]

From what I gathered from the dotcom bubble there were companies on paper that didn't even exist yet and people were throwing money at just ideas.

Nikola Corporation and QuantumScape would like to have a word with you.

[Wanderingwheelz]

Back then, I remember a lot of "concerns", including Y2K.
But I don't remember people thinking... saying... "We're (all) gonna die!"

Oh, wait, some ARE dying now, of COVID. And many more will continue to die.
I can't help but assume that there is some tamping down of "the market" due to the pandemic.

The market may be judged "high" by some, but I'm not sensing a huge level of "exuberance" these days. Maybe that's just those of us who are older and more vulnerable?

RM

If you’re not seeing signs of exuberance, I’d suggest first removing the blindfold.

I guess I am in the blindfold camp unless someone can explain to me why bonds or cash are less risky and overvalued than stocks.

Perhaps you weren’t living through the dotcom bubble as an investor. I had a double whammy, since I was an investor and a financial advisor to boot. I can’t imagine how anyone who lived through that doesn’t see similarities today.

Bonds and cash are risky if that’s how you perceive them and you also know what the next big move in interest rates will be. I do not, so I don’t invest my money as if I do.

Are you taking action?

I’m about as Bogleheadian as a person can get. 70/30 with 25% in international and 3 Funds total. Perhaps I’m taking a small amount of action by being 70/30 vs 60/40, but there’s hardly a difference.

I’m willing to take a beating on my bonds if stocks continue to climb higher like they are. My returns since Thanksgiving have been nothing short of remarkable even with bonds being pretty weak. My wife and I are both scratching our heads, but hey. Like I said, don’t ask me to predict what’s coming our way. Maybe reversion to me mean isn’t a thing anymore. Nobody knows.

[Shallowpockets]

Why not ride the bubble? As all indexers are to some extent anyway. Indeed, we all have been according to a recent post.

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

So the first fault was the length of the bull market. Oh my, how long can it last. Getting twitchy here. Then it became an epic bubble. What to do now. Now it is a bigger exuberance. Bigger than before. It actually went through the big part and is now on the bigger part.
And we are all still riding it.
Maybe every bull market is a bubble and every bear a crash.
Some of those Tesla people are riding that bubble. So far to their benefit.
In all the talk of bubbles, bulls, exuberance, while people were talking it all continued and people made money.

[TheTimeLord]

I don’t think there’s any basis for saying it’s BIGGER than in 1999/2000. Were you an active investor back then? The level of exuberance and valuation stretch then were more.

Back then, I remember a lot of "concerns", including Y2K.
But I don't remember people thinking... saying... "We're (all) gonna die!"

Oh, wait, some ARE dying now, of COVID. And many more will continue to die.
I can't help but assume that there is some tamping down of "the market" due to the pandemic.

The market may be judged "high" by some, but I'm not sensing a huge level of "exuberance" these days. Maybe that's just those of us who are older and more vulnerable?

RM

If you’re not seeing signs of exuberance, I’d suggest first removing the blindfold.

I guess I am in the blindfold camp unless someone can explain to me why bonds or cash are less risky and overvalued than stocks.

Perhaps you weren’t living through the dotcom bubble as an investor. I had a double whammy, since I was an investor and a financial advisor to boot. I can’t imagine how anyone who lived through that doesn’t see similarities today.

Bonds and cash are risky if that’s how you perceive them and you also know what the next big move in interest rates will be. I do not, so I don’t invest my money as if I do.

Live through it, invested through it, see both of these as periods of historically high valuations with very different set ups going forward. Could I be wrong, yep my most certainly could, but my guess is somewhere around the end of 2022 is when we will closely resemble the Dot.com bubble.

[dogagility]

I'm staying the course. YMMV

[Wanderingwheelz]

Back then, I remember a lot of "concerns", including Y2K.
But I don't remember people thinking... saying... "We're (all) gonna die!"

Oh, wait, some ARE dying now, of COVID. And many more will continue to die.
I can't help but assume that there is some tamping down of "the market" due to the pandemic.

The market may be judged "high" by some, but I'm not sensing a huge level of "exuberance" these days. Maybe that's just those of us who are older and more vulnerable?

RM

If you’re not seeing signs of exuberance, I’d suggest first removing the blindfold.

I guess I am in the blindfold camp unless someone can explain to me why bonds or cash are less risky and overvalued than stocks.

Perhaps you weren’t living through the dotcom bubble as an investor. I had a double whammy, since I was an investor and a financial advisor to boot. I can’t imagine how anyone who lived through that doesn’t see similarities today.

Bonds and cash are risky if that’s how you perceive them and you also know what the next big move in interest rates will be. I do not, so I don’t invest my money as if I do.

Live through it, invested through it, see both of these as periods of historically high valuations with very different set ups going forward. Could I be wrong, yep my most certainly could, but my guess is somewhere around the end of 2022 is when we will closely resemble the Dot.com bubble.

Lol. I just marked my calendar.

Thanksgiving 2022 I’m going all cash. Or would you recommend Halloween to be on the safe side?

[TheTimeLord]

I don’t think there’s any basis for saying it’s BIGGER than in 1999/2000. Were you an active investor back then? The level of exuberance and valuation stretch then were more.

Back then, I remember a lot of "concerns", including Y2K.
But I don't remember people thinking... saying... "We're (all) gonna die!"

Oh, wait, some ARE dying now, of COVID. And many more will continue to die.
I can't help but assume that there is some tamping down of "the market" due to the pandemic.

The market may be judged "high" by some, but I'm not sensing a huge level of "exuberance" these days. Maybe that's just those of us who are older and more vulnerable?

RM

If you’re not seeing signs of exuberance, I’d suggest first removing the blindfold.

I guess I am in the blindfold camp unless someone can explain to me why bonds or cash are less risky and overvalued than stocks.

Bonds or cash are less risky if there is a crash, which is the bubble thing that we are talking about.

If you assume the crash is imminent, going to be severe and believe a recovery is likely to be protracted then I would agree. As with most things time will tell.

[TheTimeLord]

From what I gathered from the dotcom bubble there were companies on paper that didn't even exist yet and people were throwing money at just ideas.

Nikola Corporation and QuantumScape would like to have a word with you.

I would agree EV/Battery Tech/Clean Energy do in ways resemble the internet stocks of 2000, I just don't see nearly as many of them as I think I remember seeing Dot.com darlings in 2000.

[TheTimeLord]

If you’re not seeing signs of exuberance, I’d suggest first removing the blindfold.

I guess I am in the blindfold camp unless someone can explain to me why bonds or cash are less risky and overvalued than stocks.

Perhaps you weren’t living through the dotcom bubble as an investor. I had a double whammy, since I was an investor and a financial advisor to boot. I can’t imagine how anyone who lived through that doesn’t see similarities today.

Bonds and cash are risky if that’s how you perceive them and you also know what the next big move in interest rates will be. I do not, so I don’t invest my money as if I do.

Live through it, invested through it, see both of these as periods of historically high valuations with very different set ups going forward. Could I be wrong, yep my most certainly could, but my guess is somewhere around the end of 2022 is when we will closely resemble the Dot.com bubble.

Lol. I just marked my calendar.

Thanksgiving 2022 I’m going all cash. Or would you recommend Halloween to be on the safe side?

If it helps, I am expecting us to get there in the 2nd half of 2022 and if I was to make a ridiculous call today as to when I would get out then the end of August.

[TheTimeLord]

I don’t think there’s any basis for saying it’s BIGGER than in 1999/2000. Were you an active investor back then? The level of exuberance and valuation stretch then were more.

Back then, I remember a lot of "concerns", including Y2K.
But I don't remember people thinking... saying... "We're (all) gonna die!"

Oh, wait, some ARE dying now, of COVID. And many more will continue to die.
I can't help but assume that there is some tamping down of "the market" due to the pandemic.

The market may be judged "high" by some, but I'm not sensing a huge level of "exuberance" these days. Maybe that's just those of us who are older and more vulnerable?

RM

If you’re not seeing signs of exuberance, I’d suggest first removing the blindfold.

I guess I am in the blindfold camp unless someone can explain to me why bonds or cash are less risky and overvalued than stocks.

Bonds or cash are less risky if there is a crash, which is the bubble thing that we are talking about.

Here is the OP first post on this forum in April. How would you like to have gone 100% International then?

I'm surprised that hardly anyone is talking about international investing, even among value investors. International stocks are as undervalued as US stocks were in 1974 and 1982. After you take the undervalued currencies into account, they're as undervalued as US stocks were in the 1930s. Right now, the "Buy American" brigade has no room for value investors.

Just check out these price/book ratios of these well-diversified international stock ETFs (according to Morningstar):
1. DFJ (WisdomTree Japan SmallCap Dividend ETF): 0.71
2. DGS (WisdomTree Emerging Markets SmCp Div ETF): 0.78
3. FNDC (Schwab Fundamental Intl Sm Co ETF): 0.82
4. GWX (SPDR® S&P International Small Cap ETF): 0.84
5. IQIN (IQ 500 International ETF): 0.94
6. MOTI (VanEck Vectors Morningstar Intl Moat ETF): 0.94 (while owning the kinds of stocks that merit higher multiples)
7. DGRE (WisdomTree Emerging Mkts Qual Div Gr ETF): 1.33 (while owning the kinds of stocks that merit higher multiples)

By comparison, US stock ETFs sell for MUCH higher multiples. Check out these price/book ratios from Morningstar:
1. VOO (Vanguard Total Stock Market ETF): 2.58
2. MOAT (VanEck Vectors Morningstar Wide Moat ETF): 2.63, nearly triple the multiple of MOTI (0.94)
3. VTI (Vanguard S&P 500 ETF): 2.76
4. DGRW (WisdomTree US Quality Dividend Gr ETF): 3.67, nearly triple the multiple of DGRE (1.33)

Because the US dollar has been strengthening for most of the past several years, all but two currencies are currently undervalued according to the Big Mac Index. Asian currencies are particularly cheap.

This is an unprecedented opportunity for the small investor. Not only are the stocks and currencies undervalued, there are so many international stock ETFs that didn't exist 10 or 20 years ago. Vanguard Brokerage now offers commission-free trading of stocks and ETFs, which is a boon for small investors and for thinly-traded securities (like MOTI and DGRE).

[Wanderingwheelz]

I guess I am in the blindfold camp unless someone can explain to me why bonds or cash are less risky and overvalued than stocks.

Perhaps you weren’t living through the dotcom bubble as an investor. I had a double whammy, since I was an investor and a financial advisor to boot. I can’t imagine how anyone who lived through that doesn’t see similarities today.

Bonds and cash are risky if that’s how you perceive them and you also know what the next big move in interest rates will be. I do not, so I don’t invest my money as if I do.

Live through it, invested through it, see both of these as periods of historically high valuations with very different set ups going forward. Could I be wrong, yep my most certainly could, but my guess is somewhere around the end of 2022 is when we will closely resemble the Dot.com bubble.

Lol. I just marked my calendar.

Thanksgiving 2022 I’m going all cash. Or would you recommend Halloween to be on the safe side?

If it helps, I am expecting us to get there in the 2nd half of 2022 and if I was to make a ridiculous call today as to when I would get out then the end of August.

Labor Day it is then. (I don’t mind missing one or two days)

[checkyourmath]

A huge difference between now and the dot con bubble is 71 million people weren't looking to retire in 2000.

[Blue456]

I never imagined that I'd ever again witness anything like the Dot Con bubble of 1999-2000. I was wrong, because there's even more irrational exuberance today, and it's flying in the face of a much weaker economy.

No wonder Warren Buffett and Charlie Munger have been underperforming. No wonder value investing has been underperforming. No wonder so many people are insisting that Berkshire Hathaway and value investing have jumped the shark. Of course, I disagree.

There's no denying that US stocks are in a bubble. Stocks like Apple, Microsoft, Facebook, and Amazon are the new Nifty Fifty. Tesla is the new Dot Com. Even the broader indices (like the DJIA and S&P 500) are selling for historically high multiples. But all this is peanuts compared to Hertz.

The most irrational part of this stock market bubble was Hertz stock, which became a 10-bagger AFTER Hertz filed for bankruptcy. That's Not Exactly rational. If Hertz isn't an example of a bubble jumping the shark, then I don't know what is.

But the bubble isn't limited to US stocks. US bonds with microscopic yields (lowest in the history of the nation) that don't even cover current inflation are an even bigger bubble. At the height of the Volcker credit squeeze in the early 1980s, there were 30-year Treasury bonds selling for as little as 50 cents on the dollar. The next bear market in bonds will dwarf that one. Even a 1-percentage point increase in interest rates would decimate the values of long-term bonds. Most bubbles at least provide a hollow promise of hitting the jackpot. This bond bubble is the most idiotic in the history of the world, because it doesn't even offer that.

Bitcoin is yet another bubble. Its volatility effectively disqualifies it from being used as currency. In fact, every expenditure of cryptocurrency is a taxable event due to that volatility. It's really just another speculative football. Cryptocurrencies have a short track record, which means that we don't know what can go wrong.

In spite of these bubbles, there's more value out there than has been the case in decades. Unlike the US stock market, foreign stock markets are cheap, especially Asia. As an added bonus, the Big Mac Index shows nearly every currency to be undervalued against the US dollar, especially Asian currencies.

In spite of the cheapness of international stocks and currencies and the frothiness of US stocks, everyone assumes that international is riskier than domestic. People think they're missing out on Bitcoin and Tesla, but Japanese and emerging markets stocks aren't even on their radar. People think that they're playing it safe by buying bonds at a time when they're Certificates of Guaranteed Confiscation and just as risky as stocks were in 1929.

Let's party like 1999.

[Nate79]

Hey, maybe OP will be right one of these days.

Apparently two significant crashes in year is not enough. Especially one where people thought the world was going to end due to the pandemic.

[Triple digit golfer]

A huge difference between now and the dot con bubble is 71 million people weren't looking to retire in 2000.

???

[Normchad]

Hey, maybe OP will be right one of these days.

Apparently two significant crashes in year is not enough. Especially one where people thought the world was going to end due to the pandemic.

This is true. It was also true in 2008, where there was legitimate concern that the world wide banking system and all financial markets might collapse completely. The biggest, oldest, most successful names in American business were teetering in the edge, threatening to take out entire industries and everybody employed by them. The fear was very real.....

[Triple digit golfer]

Here is the OP first post on this forum in April. How would you like to have gone 100% International then?

He would have made 47% since then vs. about 52% for the U.S. market.

Doesn't seem huge, relatively speaking. And I don't think he suggested going 100% anyway, so the difference would have been much lower.

[z3r0c00l]

Bitcoin and Tesla in a bubble? I bet so. Apple and Facebook though? They print money effortlessly and I think deserve every bit of their share price. Apple has annual revenue of $260 billion! Facebook earns a per-employee profit of over $600,000!

[minimalistmarc]

So what if we are in a bubble? Stocks can drop 50%, maybe a bit more if we are very bubbly.

We had a decent crash in March. I’m surprised at how many bears still stayed on the sidelines. It’s like they obsessively want a lower price, even after a 35% decline.

[TheTimeLord]

Here is the OP first post on this forum in April. How would you like to have gone 100% International then?

He would have made 47% since then vs. about 52% for the U.S. market.

Doesn't seem huge, relatively speaking. And I don't think he suggested going 100% anyway, so the difference would have been much lower.

Well there you have it I guess we are in a new and bigger irrational exuberance bubble.

[alpine_boglehead]

As others said, there's parts where there's bubbles for sure. I'll add ESG/green/clean energy/sustainability investing to the list.

The broad market is not cheap, but I'm not so sure about the comparison to 1999. In the end of 1999 the 10-year treasury was above 6%, while the S&P 500 P/E ratio was about 30. So a naive equity risk premium calculation would yield 3.33% - 6% = -2.66%.

Today, the 10 year is 1.13%, the S&P 500 P/E ratio is 38 (owing to reduced earnings due to the pandemic), forward P/E is 25. So let's also assume 30. With the same calculation, the ERP would be 3.33% - 1.13% = 2.2%. Not cheap, but still quite a bit away from 1999.

But things are never perfectly comparable - history only rhymes.

I agree with TheTimeLord that we might see a/this bubble inflate over the coming months and years. Ultra-low interest rates are a very good precondition for it.

[000]

I agree, but I think the exuberance may be able to carry on for a while.