At what point is this a bubble?

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over45
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Re: At what point is this a bubble?

Post by over45 » Fri Feb 14, 2020 6:20 pm

I would have a lot more confidence in the stock market and financial system in general if I could actually discern what is going on behind the scenes. There is a real lack of trans-parity and honesty from central banks, politicians, etc. They keep moving the goal posts and changing the rules and regulations to fit their needs. Banks still don't have to mark assets to market as before the crash, and there are trillions missing or unaccounted for (27 Trillion) from the defense dept and HUD. I don't think anyone knows how much derivatives there are globally or what is in them. Banks don't trust each other for overnight loans anymore. I am naturally skeptical - what could possibly go wrong ?

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unclescrooge
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Re: At what point is this a bubble?

Post by unclescrooge » Fri Feb 14, 2020 6:20 pm

fortyofforty wrote:
Fri Feb 14, 2020 5:50 pm
firebirdparts wrote:
Fri Feb 14, 2020 5:22 pm
manatee2005 wrote:
Fri Feb 14, 2020 4:36 pm
Oh man, Ben Stein. I remember reading his column on Yahoo Finance saying how the whole subprime mortgage market was only $300 mil and even if it all collapsed it won't affect economy. Boy was he wrong.
I remember that like it was yesterday. To his defense though, he didn’t realize how much portfolio insurance had been created on it.
While Nobel prizewinning "economist" Paul Krugman predicted the crash that never came, way back in 2016. The hardest thing for economists to do is predict the future. It doesn't stop them from trying, obviously, since that's how they get published and make money from television appearances.
Economists are literally the last people to call a bubble.

I remember Ben Bernanke said there's never been a national housing crisis and thinking "oh yeah, then what happens when people like me who have borrowed 40 times their annual income to speculate in housing start to default?"

It was pretty obvious to me that their was no risk management and it was going to end badly. I was fortunate to profit from it but most was not.

CoastalWinds
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Re: At what point is this a bubble?

Post by CoastalWinds » Fri Feb 14, 2020 6:32 pm

Let’s all buy some “bespoke tranches”.

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fortyofforty
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Re: At what point is this a bubble?

Post by fortyofforty » Fri Feb 14, 2020 6:43 pm

unclescrooge wrote:
Fri Feb 14, 2020 6:20 pm
fortyofforty wrote:
Fri Feb 14, 2020 5:50 pm
firebirdparts wrote:
Fri Feb 14, 2020 5:22 pm
manatee2005 wrote:
Fri Feb 14, 2020 4:36 pm
Oh man, Ben Stein. I remember reading his column on Yahoo Finance saying how the whole subprime mortgage market was only $300 mil and even if it all collapsed it won't affect economy. Boy was he wrong.
I remember that like it was yesterday. To his defense though, he didn’t realize how much portfolio insurance had been created on it.
While Nobel prizewinning "economist" Paul Krugman predicted the crash that never came, way back in 2016. The hardest thing for economists to do is predict the future. It doesn't stop them from trying, obviously, since that's how they get published and make money from television appearances.
Economists are literally the last people to call a bubble.

I remember Ben Bernanke said there's never been a national housing crisis and thinking "oh yeah, then what happens when people like me who have borrowed 40 times their annual income to speculate in housing start to default?"

It was pretty obvious to me that their was no risk management and it was going to end badly. I was fortunate to profit from it but most was not.
Of course, certain legal actions caused banks to lend far in excess of reason. That's as far into politics as I'll delve here. Anyone can research it, who didn't live through it as investors.
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Out of self-quarantine.

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White Coat Investor
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Re: At what point is this a bubble?

Post by White Coat Investor » Fri Feb 14, 2020 6:57 pm

quantAndHold wrote:
Wed Feb 12, 2020 12:02 pm
You’ll know it’s a bubble when Uber drivers are giving you stock tips. Every bubble I’ve lived through (dotcom, real estate, bitcoin, etc) has had the same feature. Someone at the bottom of the economic ladder was telling me how to make money on the bubbling financial product.

Until then, not a bubble.
By this criteria, our latest one was bitcoin in 2017. Especially Nov-Dec when the nurses in the ER were all talking about it.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

TomCat96
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Re: At what point is this a bubble?

Post by TomCat96 » Fri Feb 14, 2020 7:05 pm

bitdocmd wrote:
Fri Feb 14, 2020 6:03 pm
Chicken Little wrote:
Thu Feb 13, 2020 5:24 am
anoop wrote:
Wed Feb 12, 2020 12:21 pm
So the key is knowing when the fed is going to stop supporting the bubble.
I don't know if there is an equity bubble, but I'm pretty sure the fed can't stop supporting the economy. They raised rates and trimmed the balance sheet a wee bit, and the market tanked, causing a prompt reversal.
Look at the repo markets. The "temporary" operation continues and was oversubscribed I think just this week. This is QE (not QE according to the Fed) DIRECTLY to hedge funds who without the liquidity may become insolvent. As I heard (not my idea) it is UBI for Jamie Dimon and colleagues...

The Fed is going to keep supporting the bubble, but they are just making it up as they go. At some point they have to address the wealth inequality issue, due to Cantillon effect, we (Bogleheads) benefit while the worker just making ends meet who cannot invest in the market suffers. I just wish I could be at the front of the line like Mr. Dimon!

Don't nobody know nothing.

No one seems to be addressing what you're writing, which is a shame.
This is how I see it. Greenspan at the end of his tenure made it no secret to push the idea that what central banks needed to do in the future was coordinate monetary policy.

In my opinion, that has occurred. The Fed does not act alone. It takes into account what the ECB does, what the Bank of China does, what the Bank of Japan does and so on.

Collectively, these banks are powerful enough to raise and elevate all asset prices if necessary. No private entity or even aggregate of such entities has enough capital to do so. And if they did (such as through leverage), they could not do so without incredible risk to both their liquidity and solvency.

Let's talk basics. For purposes of this problem let us say that 1 dollar = 100 yen

Imagine for instance, the US doubles its money supply.

Assuming all things equal, then now 1 dollar = 50 yen. Or it takes 2 dollars to equal 100 yen.

Makes sense right?

Now let us suppose the BOJ acts in coordination with the US Fed, and doubles its money supply.

Now, 1 dollar is worth 100 yen again.

Both are worth half their value with respect to the British pound.
Now suppose the Bank of England doubles its money supply.

Now we are back at parity.

Now suppose all central banks of the G8 coordinate. Now it looks like nothing has occurred save for the fact that all asset prices appear to be elevated.

At the moment, Gold is up, bonds are up, global equities are up, even bitcoin is up.

Trader Joe
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Re: At what point is this a bubble?

Post by Trader Joe » Fri Feb 14, 2020 7:18 pm

PoultryMan wrote:
Wed Feb 12, 2020 9:45 am
I know to stick with a plan and rebalance as needed. Having said that, when Warren buffett cant find anything to invest in, PE ratios seem high, when is it a bubble and time to take some money off the table?

Maybe my unease is an irrational emotion?

Im trying to make this post actionable, so I guess Im asking, is it reasonable to be concerned? Does this tell me my rebalancing bands are too wide? Too narrow? Anyone else wondering the same?
The United States (VTSAX/VFIAX) is definitely not in a bubble. As a long-time investor I am not at all concerned.

The best is yet to come.

Pierre Delecto
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Re: At what point is this a bubble?

Post by Pierre Delecto » Fri Feb 14, 2020 7:20 pm

This thread really illustrates both the buy / sell sides of market. About an even split it seems.

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unclescrooge
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Re: At what point is this a bubble?

Post by unclescrooge » Fri Feb 14, 2020 8:38 pm

White Coat Investor wrote:
Fri Feb 14, 2020 6:57 pm
quantAndHold wrote:
Wed Feb 12, 2020 12:02 pm
You’ll know it’s a bubble when Uber drivers are giving you stock tips. Every bubble I’ve lived through (dotcom, real estate, bitcoin, etc) has had the same feature. Someone at the bottom of the economic ladder was telling me how to make money on the bubbling financial product.

Until then, not a bubble.
By this criteria, our latest one was bitcoin in 2017. Especially Nov-Dec when the nurses in the ER were all talking about it.
Are they taking about Tesla now?

quantAndHold
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Re: At what point is this a bubble?

Post by quantAndHold » Fri Feb 14, 2020 11:24 pm

White Coat Investor wrote:
Fri Feb 14, 2020 6:57 pm
quantAndHold wrote:
Wed Feb 12, 2020 12:02 pm
You’ll know it’s a bubble when Uber drivers are giving you stock tips. Every bubble I’ve lived through (dotcom, real estate, bitcoin, etc) has had the same feature. Someone at the bottom of the economic ladder was telling me how to make money on the bubbling financial product.

Until then, not a bubble.
By this criteria, our latest one was bitcoin in 2017. Especially Nov-Dec when the nurses in the ER were all talking about it.
I got bitcoin tips standing in the pizza line at Costco, from two guys in Jiffy Lube uniforms.
Yes, I’m really that pedantic.

mega317
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Re: At what point is this a bubble?

Post by mega317 » Sat Feb 15, 2020 12:05 am

quantAndHold wrote:
Fri Feb 14, 2020 11:24 pm
White Coat Investor wrote:
Fri Feb 14, 2020 6:57 pm
quantAndHold wrote:
Wed Feb 12, 2020 12:02 pm
You’ll know it’s a bubble when Uber drivers are giving you stock tips. Every bubble I’ve lived through (dotcom, real estate, bitcoin, etc) has had the same feature. Someone at the bottom of the economic ladder was telling me how to make money on the bubbling financial product.

Until then, not a bubble.
By this criteria, our latest one was bitcoin in 2017. Especially Nov-Dec when the nurses in the ER were all talking about it.
I got bitcoin tips standing in the pizza line at Costco, from two guys in Jiffy Lube uniforms.
I'm not sure about this whole line of thinking. I was getting stock tips from part time nurses in 2013. I typically wouldn't want to wait 6 years and counting for my hunch to pay off, sitting in bonds in the meantime.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

imflyboy
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Re: At what point is this a bubble?

Post by imflyboy » Sat Feb 15, 2020 12:34 am

Just saw this today. Would a massive increase in trading at online platforms by regular people be an indicator? Id think the average person probably dives in head first at the worst moment...

https://sentimentrader.com/blog/mom-pop ... ut-stocks/

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firebirdparts
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Re: At what point is this a bubble?

Post by firebirdparts » Sat Feb 15, 2020 3:39 am

imflyboy wrote:
Sat Feb 15, 2020 12:34 am
Just saw this today. Would a massive increase in trading at online platforms by regular people be an indicator? Id think the average person probably dives in head first at the worst moment...

https://sentimentrader.com/blog/mom-pop ... ut-stocks/
Well, it is free now.
A fool and your money are soon partners

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White Coat Investor
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Re: At what point is this a bubble?

Post by White Coat Investor » Sat Feb 15, 2020 9:19 am

unclescrooge wrote:
Fri Feb 14, 2020 8:38 pm
White Coat Investor wrote:
Fri Feb 14, 2020 6:57 pm
quantAndHold wrote:
Wed Feb 12, 2020 12:02 pm
You’ll know it’s a bubble when Uber drivers are giving you stock tips. Every bubble I’ve lived through (dotcom, real estate, bitcoin, etc) has had the same feature. Someone at the bottom of the economic ladder was telling me how to make money on the bubbling financial product.

Until then, not a bubble.
By this criteria, our latest one was bitcoin in 2017. Especially Nov-Dec when the nurses in the ER were all talking about it.
Are they taking about Tesla now?
Haven't heard it yet.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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nedsaid
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Re: At what point is this a bubble?

Post by nedsaid » Sat Feb 15, 2020 9:19 am

PoultryMan wrote:
Wed Feb 12, 2020 9:45 am
I know to stick with a plan and rebalance as needed. Having said that, when Warren buffett cant find anything to invest in, PE ratios seem high, when is it a bubble and time to take some money off the table?

Maybe my unease is an irrational emotion?

Im trying to make this post actionable, so I guess Im asking, is it reasonable to be concerned? Does this tell me my rebalancing bands are too wide? Too narrow? Anyone else wondering the same?
Sounds to me like you need to rebalance your portfolio if you haven't done so in a while. You need to decide for yourself if this is your subconscious telling you that you have allowed your portfolio to drift to a more stock heavy portfolio and you are taking too much risk or if this is irrational emotion at work. You might need to read your Investment Policy Statement if you have one, if you don't have one, might be a good time to write one.

Sort of like attending your house of worship, good moral teaching ought to make you feel uncomfortable from time to time, making you realize that you are falling short in areas of your life and that corrective action is needed. Bull markets are sort of like that, they should make you feel uncomfortable, stocks are risky after all. If you feel too comfortable in church all the time, something is wrong, for one thing you haven't done self examination. In a similar fashion, being comfortable with a bull market is a big sign something is wrong. Complacency can be deadly. You should feel a bit of anxiety on the way up, it is perfectly normal. Euphoria is deadly to investors. Also a lesson to be wary of the effect of emotions upon your investments.

Are your concerns rational or is it irrational emotion? Time to review your Investment Policy Statement or get cracking writing one.
A fool and his money are good for business.

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nedsaid
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Re: At what point is this a bubble?

Post by nedsaid » Sat Feb 15, 2020 9:23 am

Remember this, stocks look expensive in bull markets. They look expensive because they have gone up in price! When asked if stocks were expensive, Warren Buffett famously replied, "Yes, but not as expensive as they look!"
A fool and his money are good for business.

ballons
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Re: At what point is this a bubble?

Post by ballons » Sat Feb 15, 2020 12:20 pm

Chicken Little wrote:
Thu Feb 13, 2020 5:24 am
anoop wrote:
Wed Feb 12, 2020 12:21 pm
So the key is knowing when the fed is going to stop supporting the bubble.
I don't know if there is an equity bubble, but I'm pretty sure the fed can't stop supporting the economy. They raised rates and trimmed the balance sheet a wee bit, and the market tanked, causing a prompt reversal.

If there was a recession, I would guess there's a high probability the fed would further lower rates, further extend balance sheet, and that there would be large US debt issuance for stimulus. I would expect an initial drop in stocks, but my main concern would be fixed income. There's a lot of debt out there, and any economic downturn would be amplified by a cascading decline in "capacity to pay", first in corporate and then consumer as conditions decline (employment).

In the current global context, rates would almost have to go negative. At some point (I'd say the next round, but who knows?) fixed income investors will balk, and rates of new issuance have to rise to attract cash. At that point the fed would no longer be in the drivers seat, inflation would set in, and they'd start raising well after the fact to combat.

I understand a stock market crash. I have no idea what to expect when a lot of people in Total Bond tell me they don't have the money?
We have already experienced rates near for an extended time. If the equity bubble pops so will the bubble in corporate debt. Now would be the time to re-evaluate the composition of the bonds you hold.

Total bond:

Code: Select all

U.S. Government 	 63.3%
Aaa  	 3.8%
Aa  	 3.4%
A  	 11.3%
Baa  	 18.2%
How much of that 18.2% will go bust and will it take A and Aa with it?

ballons
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Re: At what point is this a bubble?

Post by ballons » Sat Feb 15, 2020 12:29 pm

imflyboy wrote:
Sat Feb 15, 2020 12:34 am
Just saw this today. Would a massive increase in trading at online platforms by regular people be an indicator? Id think the average person probably dives in head first at the worst moment...

https://sentimentrader.com/blog/mom-pop ... ut-stocks/
Average people:
https://www.cnbc.com/2020/02/14/white-h ... tocks.html

Young people:
https://www.telegraph.co.uk/technology/ ... la-shares/

Stupid money day trading options:
https://old.reddit.com/r/wallstreetbets/

cashboy
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Re: At what point is this a bubble?

Post by cashboy » Sat Feb 15, 2020 1:17 pm

PoultryMan wrote:
Wed Feb 12, 2020 9:45 am
I know to stick with a plan and rebalance as needed. Having said that, when Warren buffett cant find anything to invest in, PE ratios seem high, when is it a bubble and time to take some money off the table?

Maybe my unease is an irrational emotion?

Im trying to make this post actionable, so I guess Im asking, is it reasonable to be concerned? Does this tell me my rebalancing bands are too wide? Too narrow? Anyone else wondering the same?
it is reasonable to be concerned, to some degree - but to 'what degree' is open to debate.

the way i deal with any concern about the current situation (or another dotcom or 2008) is to have an IPS and AA that accounts for a bubble bursting.
Three-Fund Portfolio: FSPSX - FXAIX - FXNAX (with slight tilt of CDs - CASH - Canned Beans - Rice - Bottled Water)

illumination
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Re: At what point is this a bubble?

Post by illumination » Sat Feb 15, 2020 1:42 pm

If we're taking a poll, I would say the feedback from my friends and family is about 100% that we are in a bubble right now and about to go over a cliff.

Which tells me we are NOT in a bubble. :D

I think equities are on the high side, but I also think equities "compete" with bonds and interest rates being so low means stocks will continue to be valued higher than we are used to. I also think this the new normal for interest rates and it's not going back to "normal" for the next 10+ years.

But I absolutely think another bear market will come, and I plan to stay the course just like I did in December of 2018.

sambb
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Re: At what point is this a bubble?

Post by sambb » Sat Feb 15, 2020 1:45 pm

The US is doing really well economically. Better than many previous decades. I don’t know why it is but things are good. Something has made the business climate better. With that, there was a bear market and the market down in 2018 so it hasn’t lasted that long.

imflyboy
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Re: At what point is this a bubble?

Post by imflyboy » Sat Feb 15, 2020 1:45 pm

ballons wrote:
Sat Feb 15, 2020 12:29 pm
imflyboy wrote:
Sat Feb 15, 2020 12:34 am
Just saw this today. Would a massive increase in trading at online platforms by regular people be an indicator? Id think the average person probably dives in head first at the worst moment...

https://sentimentrader.com/blog/mom-pop ... ut-stocks/
Average people:
https://www.cnbc.com/2020/02/14/white-h ... tocks.html

Young people:
https://www.telegraph.co.uk/technology/ ... la-shares/

Stupid money day trading options:
https://old.reddit.com/r/wallstreetbets/
That reddit is insane! I can barely follow what they’re talking about :shock:

klaus14
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Re: At what point is this a bubble?

Post by klaus14 » Sat Feb 15, 2020 4:09 pm

Forester wrote:
Wed Feb 12, 2020 2:02 pm
S&P 500 is looking top heavy

Image
why does it matter? you need show those top companies are unjustly valued. to do that you need to show forward earnings* share of those companies are larger percentage than their market cap share of sp500.

*and probably one year is not enough, this needs to be done like discounted future cash flow.
15% VFMF, 15% NTSX | 10% ISCF, 5% EFAV | 5% FNDE, 5% EMGF, 5% VEGBX, 5% LEMB | 15% EDV, 5% CD (5y), 5% I/EE Bonds | 10% GLDM

ballons
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Re: At what point is this a bubble?

Post by ballons » Sat Feb 15, 2020 7:44 pm

imflyboy wrote:
Sat Feb 15, 2020 1:45 pm
ballons wrote:
Sat Feb 15, 2020 12:29 pm
imflyboy wrote:
Sat Feb 15, 2020 12:34 am
Just saw this today. Would a massive increase in trading at online platforms by regular people be an indicator? Id think the average person probably dives in head first at the worst moment...

https://sentimentrader.com/blog/mom-pop ... ut-stocks/
Average people:
https://www.cnbc.com/2020/02/14/white-h ... tocks.html

Young people:
https://www.telegraph.co.uk/technology/ ... la-shares/

Stupid money day trading options:
https://old.reddit.com/r/wallstreetbets/
That reddit is insane! I can barely follow what they’re talking about :shock:
They are doing the riskiest options bets using smartphone trading apps because "stocks always go up!"

What's worse is the smartphone trading apps they use are even stupider:
https://www.cnbc.com/2019/11/05/some-ro ... money.html

ballons
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Re: At what point is this a bubble?

Post by ballons » Sat Feb 15, 2020 7:56 pm

illumination wrote:
Sat Feb 15, 2020 1:42 pm
If we're taking a poll, I would say the feedback from my friends and family is about 100% that we are in a bubble right now and about to go over a cliff.

Which tells me we are NOT in a bubble. :D

I think equities are on the high side, but I also think equities "compete" with bonds and interest rates being so low means stocks will continue to be valued higher than we are used to.
Equities continue to go up; bonds continue to bid down. That isn't competition. People should be exiting bonds to chase equities.

Financologist
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Re: At what point is this a bubble?

Post by Financologist » Sat Feb 15, 2020 9:23 pm

People pay a price that they're willing to pay. And other people sell at a price that they're willing to sell at. In other words value is a personal matter.

A PE ratio of 50 could make sense to a German investor who prefers paying $100 a share for a chance at $2 of earnings versus paying $100 for a bond that doesn't earn anything. Another German investor may prefer a negative yield bond over that stock.

So if you think that stocks are overvalued based on your personal investment objectives then you shouldn't buy them.

Folks maintaining a fixed asset allocation are doing this every day when they rebalance.

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whodidntante
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Re: At what point is this a bubble?

Post by whodidntante » Sat Feb 15, 2020 9:30 pm

bitdocmd wrote:
Fri Feb 14, 2020 6:03 pm
The Fed is going to keep supporting the bubble, but they are just making it up as they go. At some point they have to address the wealth inequality issue, due to Cantillon effect, we (Bogleheads) benefit while the worker just making ends meet who cannot invest in the market suffers.
Do they?

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willthrill81
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Re: At what point is this a bubble?

Post by willthrill81 » Sat Feb 15, 2020 9:42 pm

PoultryMan wrote:
Wed Feb 12, 2020 9:45 am
I know to stick with a plan and rebalance as needed. Having said that, when Warren buffett cant find anything to invest in, PE ratios seem high, when is it a bubble and time to take some money off the table?

Maybe my unease is an irrational emotion?

Im trying to make this post actionable, so I guess Im asking, is it reasonable to be concerned? Does this tell me my rebalancing bands are too wide? Too narrow? Anyone else wondering the same?
Unease is an emotional response. To the fullest extent that you are able, you should attempt to divest your investment behavior from your emotions. This does not mean that you don't experience the emotions, but you do not act upon them.

Personally, in order to keep my emotions in check (along with several other goals), I became a trend follower. My strategy is very long-biased, but knowing that I have some downside protection (beyond taking basically 0% expected real returns in bonds) is very comforting to me. That does not mean that I cannot experience a 20% drawdown or more because I can and already have. But I expect to not have a 50% drawdown, which happened twice between 2000 and 2009 alone. I'm not recommending this to you, just relaying what I chose to do to deal with my own emotions.
“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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willthrill81
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Re: At what point is this a bubble?

Post by willthrill81 » Sat Feb 15, 2020 9:44 pm

Forester wrote:
Wed Feb 12, 2020 2:02 pm
S&P 500 is looking top heavy

Image
I'm inclined to agree. The last time the market was this top heavy didn't end well for TSM (real loss from 2000-2009), nor did it end well for the top cap-weighted companies.
willthrill81 wrote:
Wed Oct 17, 2018 11:39 pm
I became aware earlier of research which indicated that the largest companies in a country's stock market, as defined by market capitalization, tend to underperform the rest of the market going forward. But it wasn't until today that I came across such a dramatic example of this in action from Research Affiliates. This article concerned market bubbles, but this paragraph is interesting even out of that context.
At the beginning of 2000, the 10 largest market-cap tech stocks in the United States, collectively representing a 25% share of the S&P 500 Index—Microsoft, Cisco, Intel, IBM, AOL, Oracle, Dell, Sun, Qualcomm, and HP—did not live up to the excessively optimistic expectations. Over the next 18 years, not a single one beat the market: five produced positive returns, averaging 3.2% a year compounded, far lower than the market return, and two failed outright. Of the five that produced negative returns, the average outcome was a loss of 7.2% a year, or 12.6% a year less than the S&P 500.
emphasis added
https://www.researchaffiliates.com/en_u ... -what.html

I'm sure that someone has done something like this, but I would find it interesting to see the performance of the S&P 500 or total stock market minus the top 10 stocks by market cap over time.

I'll also be interested to see whether this trend continues into the future. I suspect that it will.
“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

BanquetBeer
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Re: At what point is this a bubble?

Post by BanquetBeer » Sat Feb 15, 2020 10:14 pm

sambb wrote:
Sat Feb 15, 2020 1:45 pm
The US is doing really well economically. Better than many previous decades. I don’t know why it is but things are good. Something has made the business climate better. With that, there was a bear market and the market down in 2018 so it hasn’t lasted that long.
I would guess the large cuts in corporate tax that were passed.

bitdocmd
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Re: At what point is this a bubble?

Post by bitdocmd » Sat Feb 15, 2020 11:03 pm

whodidntante wrote:
Sat Feb 15, 2020 9:30 pm
bitdocmd wrote:
Fri Feb 14, 2020 6:03 pm
The Fed is going to keep supporting the bubble, but they are just making it up as they go. At some point they have to address the wealth inequality issue, due to Cantillon effect, we (Bogleheads) benefit while the worker just making ends meet who cannot invest in the market suffers.
Do they?
Great question.

Perhaps not unless people are protesting in the streets. It's unlikely to get to that point in the U.S. as most of us are fat and happy.

JonnyB
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Re: At what point is this a bubble?

Post by JonnyB » Sat Feb 15, 2020 11:15 pm

This graph doesn't show what people seem to be implying it shows, with regards to "top heavy."

First note that is is an unusual metric, the price to revenue ratio, not price to earnings. Price to revenue is sometimes used to take a look at companies like Uber that have revenues but no earnings (profits).

Second note that the deciles have nothing to do with the size of companies. They are ranking companies from high revenue (lowest decile) to low revenue (highest decile). So the notion that it is "top heavy" is kind of backwards. Low revenue companies are at the top.

What an expansion of the top decile might mean is that there are about 50 companies in the S&P 500 that are fairly new IPOs that have not matured enough to have high revenues yet. Whether that indicates a bubble is debatable.

bitdocmd
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Re: At what point is this a bubble?

Post by bitdocmd » Sat Feb 15, 2020 11:44 pm

quantAndHold wrote:
Fri Feb 14, 2020 11:24 pm
White Coat Investor wrote:
Fri Feb 14, 2020 6:57 pm
quantAndHold wrote:
Wed Feb 12, 2020 12:02 pm
You’ll know it’s a bubble when Uber drivers are giving you stock tips. Every bubble I’ve lived through (dotcom, real estate, bitcoin, etc) has had the same feature. Someone at the bottom of the economic ladder was telling me how to make money on the bubbling financial product.

Until then, not a bubble.
By this criteria, our latest one was bitcoin in 2017. Especially Nov-Dec when the nurses in the ER were all talking about it.
I got bitcoin tips standing in the pizza line at Costco, from two guys in Jiffy Lube uniforms.
Uber drivers and Jiffy Lube guys do valuable work. The Uber driver prevents me from harming others after a few drinks. The Jiffy Lube guy keeps my car working so I can drive my girlfriend to Whole Foods to get organic carrots and keenwah.

Don't discount the financial wisdom of those you may look down on, even if they are "at the bottom of the economic ladder."

BTW what did the Jiffy Lube guys say?

quantAndHold
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Re: At what point is this a bubble?

Post by quantAndHold » Sun Feb 16, 2020 2:32 pm

bitdocmd wrote:
Sat Feb 15, 2020 11:44 pm
quantAndHold wrote:
Fri Feb 14, 2020 11:24 pm
White Coat Investor wrote:
Fri Feb 14, 2020 6:57 pm
quantAndHold wrote:
Wed Feb 12, 2020 12:02 pm
You’ll know it’s a bubble when Uber drivers are giving you stock tips. Every bubble I’ve lived through (dotcom, real estate, bitcoin, etc) has had the same feature. Someone at the bottom of the economic ladder was telling me how to make money on the bubbling financial product.

Until then, not a bubble.
By this criteria, our latest one was bitcoin in 2017. Especially Nov-Dec when the nurses in the ER were all talking about it.
I got bitcoin tips standing in the pizza line at Costco, from two guys in Jiffy Lube uniforms.
Uber drivers and Jiffy Lube guys do valuable work. The Uber driver prevents me from harming others after a few drinks. The Jiffy Lube guy keeps my car working so I can drive my girlfriend to Whole Foods to get organic carrots and keenwah.

Don't discount the financial wisdom of those you may look down on, even if they are "at the bottom of the economic ladder."

BTW what did the Jiffy Lube guys say?
Uber drivers and Jiffy Lube guys do indeed provide valuable services. Sound financial advice is not one of the valuable services they provide, however.

Jiffy Lube guys told me that Bitcoin was going to make them rich, and I should get on board. One of them had just bought $14k worth, which was like 0.5 btc at the time. It was about 2 weeks before it all came crashing down, IIRC.
Yes, I’m really that pedantic.

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ReformedSpender
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Re: At what point is this a bubble?

Post by ReformedSpender » Sun Feb 16, 2020 2:57 pm

sambb wrote:
Sat Feb 15, 2020 1:45 pm
The US is doing really well economically. Better than many previous decades. I don’t know why it is but things are good.
Based on what metric?
Market history shows that when there's economic blue sky, future returns are low, and when the economy is on the skids, future returns are high. The best fishing is done in the most stormy waters.

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fortyofforty
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Re: At what point is this a bubble?

Post by fortyofforty » Sun Feb 16, 2020 3:37 pm

bitdocmd wrote:
Sat Feb 15, 2020 11:03 pm
whodidntante wrote:
Sat Feb 15, 2020 9:30 pm
bitdocmd wrote:
Fri Feb 14, 2020 6:03 pm
The Fed is going to keep supporting the bubble, but they are just making it up as they go. At some point they have to address the wealth inequality issue, due to Cantillon effect, we (Bogleheads) benefit while the worker just making ends meet who cannot invest in the market suffers.
Do they?
Great question.

Perhaps not unless people are protesting in the streets. It's unlikely to get to that point in the U.S. as most of us are fat and happy.
Why would fat and happy people protest? Americans are among the richest people in the history of humanity, and even the poorest Americans enjoy a historically high standard of living. When did it become the role of the Federal Reserve to address perceived wealth inequality, I wonder.
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Out of self-quarantine.

Angst
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Re: At what point is this a bubble?

Post by Angst » Sun Feb 16, 2020 6:00 pm

Forester wrote:
Wed Feb 12, 2020 2:02 pm
S&P 500 is looking top heavy

Image
JonnyB wrote:
Sat Feb 15, 2020 11:15 pm
This graph doesn't show what people seem to be implying it shows, with regards to "top heavy."

First note that is is an unusual metric, the price to revenue ratio, not price to earnings. Price to revenue is sometimes used to take a look at companies like Uber that have revenues but no earnings (profits).

Second note that the deciles have nothing to do with the size of companies. They are ranking companies from high revenue (lowest decile) to low revenue (highest decile). So the notion that it is "top heavy" is kind of backwards. Low revenue companies are at the top.

What an expansion of the top decile might mean is that there are about 50 companies in the S&P 500 that are fairly new IPOs that have not matured enough to have high revenues yet. Whether that indicates a bubble is debatable.
I think I agree... If this is showing the S&P 500 components broken out into 10 deciles defined by relative levels of Price to Revenue, it would appear that we can't infer anything at all about the highest capitalization S&P 500 companies vs. the lowest cap ones. So what are we supposed to learn from it? That there has been an increase in levels of Price/Revenue (and its volatility) over the last 34 years, for at least some portion of the S&P 500? What is its significance?

stoptothink
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Re: At what point is this a bubble?

Post by stoptothink » Sun Feb 16, 2020 6:13 pm

fortyofforty wrote:
Sun Feb 16, 2020 3:37 pm
bitdocmd wrote:
Sat Feb 15, 2020 11:03 pm
whodidntante wrote:
Sat Feb 15, 2020 9:30 pm
bitdocmd wrote:
Fri Feb 14, 2020 6:03 pm
The Fed is going to keep supporting the bubble, but they are just making it up as they go. At some point they have to address the wealth inequality issue, due to Cantillon effect, we (Bogleheads) benefit while the worker just making ends meet who cannot invest in the market suffers.
Do they?
Great question.

Perhaps not unless people are protesting in the streets. It's unlikely to get to that point in the U.S. as most of us are fat and happy.
Why would fat and happy people protest? Americans are among the richest people in the history of humanity, and even the poorest Americans enjoy a historically high standard of living. When did it become the role of the Federal Reserve to address perceived wealth inequality, I wonder.
This +1000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000

JonnyB
Posts: 290
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Re: At what point is this a bubble?

Post by JonnyB » Sun Feb 16, 2020 6:21 pm

Angst wrote:
Sun Feb 16, 2020 6:00 pm
So what are we supposed to learn from it? That there has been an increase in levels of Price/Revenue (and its volatility) over the last 34 years, for at least some portion of the S&P 500? What is its significance?
What you might infer from it is that companies that haven't yet demonstrated that they can make money are being bid up irrationally by speculative pricing. But you really can't tell much just from this graph. It might be more informative if you looked in detail at the list of 50 companies presumably in the top decile.

Angst
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Re: At what point is this a bubble?

Post by Angst » Sun Feb 16, 2020 7:07 pm

JonnyB wrote:
Sun Feb 16, 2020 6:21 pm
What you might infer from it is that companies that haven't yet demonstrated that they can make money are being bid up irrationally by speculative pricing. But you really can't tell much just from this graph. It might be more informative if you looked in detail at the list of 50 companies presumably in the top decile.
It's interesting, and it does point to differences between the Dot Com bust and the 2008 GFC.

alwayshedge
Posts: 214
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Re: At what point is this a bubble?

Post by alwayshedge » Sun Feb 16, 2020 7:44 pm

quantAndHold wrote:
Sun Feb 16, 2020 2:32 pm
bitdocmd wrote:
Sat Feb 15, 2020 11:44 pm
quantAndHold wrote:
Fri Feb 14, 2020 11:24 pm
White Coat Investor wrote:
Fri Feb 14, 2020 6:57 pm
quantAndHold wrote:
Wed Feb 12, 2020 12:02 pm
You’ll know it’s a bubble when Uber drivers are giving you stock tips. Every bubble I’ve lived through (dotcom, real estate, bitcoin, etc) has had the same feature. Someone at the bottom of the economic ladder was telling me how to make money on the bubbling financial product.

Until then, not a bubble.
By this criteria, our latest one was bitcoin in 2017. Especially Nov-Dec when the nurses in the ER were all talking about it.
I got bitcoin tips standing in the pizza line at Costco, from two guys in Jiffy Lube uniforms.
Uber drivers and Jiffy Lube guys do valuable work. The Uber driver prevents me from harming others after a few drinks. The Jiffy Lube guy keeps my car working so I can drive my girlfriend to Whole Foods to get organic carrots and keenwah.

Don't discount the financial wisdom of those you may look down on, even if they are "at the bottom of the economic ladder."

BTW what did the Jiffy Lube guys say?
Uber drivers and Jiffy Lube guys do indeed provide valuable services. Sound financial advice is not one of the valuable services they provide, however.

Jiffy Lube guys told me that Bitcoin was going to make them rich, and I should get on board. One of them had just bought $14k worth, which was like 0.5 btc at the time. It was about 2 weeks before it all came crashing down, IIRC.
BTC was never at 28,000

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firebirdparts
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Re: At what point is this a bubble?

Post by firebirdparts » Sun Feb 16, 2020 9:07 pm

Angst wrote:
Sun Feb 16, 2020 7:07 pm

It's interesting, and it does point to differences between the Dot Com bust and the 2008 GFC.
It’s not just differences. The two events are totally unrelated. I don’t expect to ever see quite that 2008 thing again, but we could see something similar if a tangled nest of derivatives plays the role of the mortgage backed securities.
A fool and your money are soon partners

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nedsaid
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Re: At what point is this a bubble?

Post by nedsaid » Sun Feb 16, 2020 9:19 pm

I can envision Paul Revere on his midnight ride warning us that the Crash is coming. One if by High Tech and Two if by Real Estate. The problem is that Paul Revere doesn't know a crash is coming nor will the lanterns in Old North Church tell us by which way the crash will come. By land or by sea? These things are obvious only in retrospect, things seemed out of whack to me in late 1999 and early 2000 when the NASDAQ would go up 100 points in a day or when our Foundation Accountant tried to day trade her 403(b) account. I didn't know a crash was coming but I had feelings of unease. The thing is, I felt uneasy about the markets all the way up.
A fool and his money are good for business.

Soon2BXProgrammer
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Re: At what point is this a bubble?

Post by Soon2BXProgrammer » Sun Feb 16, 2020 9:22 pm

PoultryMan wrote:
Wed Feb 12, 2020 9:45 am
I know to stick with a plan and rebalance as needed. Having said that, when Warren buffett cant find anything to invest in, PE ratios seem high, when is it a bubble and time to take some money off the table?

Maybe my unease is an irrational emotion?

Im trying to make this post actionable, so I guess Im asking, is it reasonable to be concerned? Does this tell me my rebalancing bands are too wide? Too narrow? Anyone else wondering the same?
What percent of your equities are in international equities?

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Forester
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Re: At what point is this a bubble?

Post by Forester » Mon Feb 17, 2020 6:36 am

Angst wrote:
Sun Feb 16, 2020 6:00 pm
What is its significance?
I don't know, I guess we'll find out. It isn't something to take action on but the diverging fortunes of "new economy" megacap vs everyone else is interesting.

Lee_WSP
Posts: 2140
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Location: Arizona

Re: At what point is this a bubble?

Post by Lee_WSP » Mon Feb 17, 2020 12:56 pm

nedsaid wrote:
Sun Feb 16, 2020 9:19 pm
I can envision Paul Revere on his midnight ride warning us that the Crash is coming. One if by High Tech and Two if by Real Estate. The problem is that Paul Revere doesn't know a crash is coming nor will the lanterns in Old North Church tell us by which way the crash will come. By land or by sea? These things are obvious only in retrospect, things seemed out of whack to me in late 1999 and early 2000 when the NASDAQ would go up 100 points in a day or when our Foundation Accountant tried to day trade her 403(b) account. I didn't know a crash was coming but I had feelings of unease. The thing is, I felt uneasy about the markets all the way up.
Paul revere only communicated what had already happened. Not what was coming. Therefore, I don’t think that is a great analogy.

ballons
Posts: 145
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Re: At what point is this a bubble?

Post by ballons » Mon Feb 17, 2020 3:04 pm

Financologist wrote:
Sat Feb 15, 2020 9:23 pm
People pay a price that they're willing to pay. And other people sell at a price that they're willing to sell at. In other words value is a personal matter.

A PE ratio of 50 could make sense to a German investor who prefers paying $100 a share for a chance at $2 of earnings versus paying $100 for a bond that doesn't earn anything. Another German investor may prefer a negative yield bond over that stock.

So if you think that stocks are overvalued based on your personal investment objectives then you shouldn't buy them.

Folks maintaining a fixed asset allocation are doing this every day when they rebalance.
This kind of logic feeds more into the bubble. "Housing is overvalued, but think of the money you will be throwing away by renting! Housing is a better investment and always goes up!"

mptfan
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Re: At what point is this a bubble?

Post by mptfan » Mon Feb 17, 2020 3:06 pm

PoultryMan wrote:
Wed Feb 12, 2020 9:45 am
I know to stick with a plan and rebalance as needed. Having said that, when Warren buffett cant find anything to invest in, PE ratios seem high, when is it a bubble and time to take some money off the table?
Define "bubble."

ballons
Posts: 145
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Re: At what point is this a bubble?

Post by ballons » Mon Feb 17, 2020 3:23 pm

nedsaid wrote:
Sun Feb 16, 2020 9:19 pm
I can envision Paul Revere on his midnight ride warning us that the Crash is coming. One if by High Tech and Two if by Real Estate. The problem is that Paul Revere doesn't know a crash is coming nor will the lanterns in Old North Church tell us by which way the crash will come. By land or by sea? These things are obvious only in retrospect, things seemed out of whack to me in late 1999 and early 2000 when the NASDAQ would go up 100 points in a day or when our Foundation Accountant tried to day trade her 403(b) account. I didn't know a crash was coming but I had feelings of unease. The thing is, I felt uneasy about the markets all the way up.
"Paul Revere" already rode and everyone has already forgot:
https://www.marketwatch.com/story/treas ... 2018-12-23

Turned out to be a lie as Fed repo markets and balance sheet increases started.

Caduceus
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Re: At what point is this a bubble?

Post by Caduceus » Mon Feb 17, 2020 6:25 pm

mptfan wrote:
Mon Feb 17, 2020 3:06 pm
PoultryMan wrote:
Wed Feb 12, 2020 9:45 am
I know to stick with a plan and rebalance as needed. Having said that, when Warren buffett cant find anything to invest in, PE ratios seem high, when is it a bubble and time to take some money off the table?
Define "bubble."
I think it's a tricky question but in some senses also an unfair one. With an individual asset, I'd approach the concept of a bubble by saying that an asset or asset class is in a bubble when there is a significant chance of a significant impairment of the capital invested. We understand this intuitively with arms-length transactions that take place in purchases and sales of private companies. If you have a lemon stand on the street corner with annual profits of $100 and I'm willing to pay you $10,000 for it, that's a bubble.

With index funds, the hurdle is very high because you could argue that something isn't in a "bubble" until the yields are below that of U.S. government credits. So you can have something trading at 30, 40 times earnings, and still claim it isn't a bubble.

But I think what OP was asking is if valuations are rich. And I think he's right to worry about that.

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