Ok, I'm no forecaster or anything. But for months I've been pointing out that the equity risk premium is quite large by historical standards. I did it in this thread a couple of weeks ago:
I honestly don't understand posters like DanMahoney, Forester, RayKeynes, 000, etc calling stocks overvalued and a bubble. Or the posters constantly itching to rebalance into bonds, like nedsaid, HalfMillionaire, flyingaway, etc. Ex:
Stocks are risky of course, they always could drop. But at least now they seem to offer a better return for that assumed risk. At least it appears like that to me.
Robot Monster wrote: ↑Wed Sep 02, 2020 12:21 pm
adave wrote: ↑Wed Sep 02, 2020 11:59 am
While I agree the economy is fragile right now, interest rates are zero which makes sitting on cash a money loser and makes bonds unattractive. Fundamentally, until this changes and rates start to go up (which could be years) stocks will continue to melt up. Tough to be a bear right now and fight the Fed
Shouldn't TINA be fully priced in, at this point? If not, how long does it take TINA to be priced in?
Maybe but maybe not. A rate drop from 1.5% to 0% should theoretically re-price stocks by about +60% (given a P/E of 25). That's just crude math but it's just to get the order of magnitude right. Now, we're getting close to that from March, so I'd say TINA and low rates are finally mostly priced in. But they weren't for months as you saw. Of course, we're close to where we were in March and rates are much lower so that's why I think there's still some uncertainty from the economy holding back stocks. If the economy fully recovered and rates were kept where they are, I think stocks would have to go up substantially more.
Markets have lags. My theory is that plenty of people are happy to sell as the market rises due to anchoring bias and thinking in nominal terms (money illusion). So the market always has some downward pressure as it gets to new heights.
Timing markets with fundamentals doesn't work well in the short term but I'm of the thought that it works in the medium to long term. Eventually, stocks catch up (or down!) to fundamentals.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson