The new and bigger irrational exuberance

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willthrill81
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Re: The new and bigger irrational exuberance

Post by willthrill81 »

spanky123 wrote: Sun Jan 10, 2021 2:20 pm
dmcmahon wrote: Sun Jan 10, 2021 1:48 pm

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? :confused
If you're very confident that it's overvalued, then logically you might consider shorting the stock. But that entails lending costs, the fact that you can lose more than 100% of your investment, and the reality that 'the market can remain irrational longer than you can remain solvent'. So I wouldn't recommend it anyway.

For the record, I thought that Amazon was ridiculously overvalued when it was $1,000/share. Thankfully, I didn't act on that belief.
“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
PaloRojo
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Re: The new and bigger irrational exuberance

Post by PaloRojo »

dmcmahon wrote: Sun Jan 10, 2021 1:48 pm 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.
This could very well be the case, but anyone claiming "it's different this time" because of technology would be smart to recognize that people were saying the exact same thing in 1929 (back then, it was the radio) and 1999. In Floyd Norris' unbelievably timely 1999 NYT article, "Looking Back at the Crash of 1929," this is what he had to say:
Any look back now at the great stock market boom of the 1920's must inevitably be colored by the boom of the 1990's. Then, as now, leverage helped push prices up. Then anyone could buy stocks by putting up 10 percent of the purchase price. Now, the margin rules call for 50 percent, but that rule is easily evaded by those who wish to do so. Then, as now, there was talk that an exciting new technology had rendered the old economic laws irrelevant. Then, as now, stock connected to that technology zoomed skyward, but even companies that had nothing to do with the technology saw their stock prices benefit.

That technology was radio. Like the Internet, it led to widely publicized new ways to trade stocks. Suddenly, investors and speculators could be closer than ever before to the action. Millions of dollars of stocks were traded from brokerage house offices set up on cruise ships crossing the Atlantic.


https://archive.nytimes.com/www.nytimes ... floyd.html

It's at least worth considering that your same argument was made in the two bubbles the current market is most often compared to, and in both cases technology didn't prevent the bubble from bursting. The other thing I'd add is that the acceleration of technological progress brought on by COVID is inherently deflationary, which is the last thing an overly-indebted economy needs.

In my view, most long market bets today are bets on reflation. If we fail to generate that, it's hard to make an argument for this being anything other than a bubble caused by persistently low - indeed, artificially low - interest rates, which has resulted in a reckless misallocation of capital.
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Re: The new and bigger irrational exuberance

Post by PaloRojo »

flyingaway wrote: Sun Jan 10, 2021 3:38 pmI 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).
In my opinion, this is the single largest difference between 1999 and 2021. In '99, you could at least still buy TIPS for 4% and munis for 10%. Today, it really does seem like TINA which, in my view as a market skeptic, is the most compelling argument equity bulls have.
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spanky123
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Re: The new and bigger irrational exuberance

Post by spanky123 »

willthrill81 wrote: Tue Jan 12, 2021 12:43 pm
spanky123 wrote: Sun Jan 10, 2021 2:20 pm
dmcmahon wrote: Sun Jan 10, 2021 1:48 pm

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? :confused
If you're very confident that it's overvalued, then logically you might consider shorting the stock. But that entails lending costs, the fact that you can lose more than 100% of your investment, and the reality that 'the market can remain irrational longer than you can remain solvent'. So I wouldn't recommend it anyway.

For the record, I thought that Amazon was ridiculously overvalued when it was $1,000/share. Thankfully, I didn't act on that belief.
It could stay overvalued for a long time.
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Re: The new and bigger irrational exuberance

Post by PaloRojo »

lostdog wrote: Sun Jan 10, 2021 4:08 pm 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.
That's a gross oversimplification. Cisco, for example, was one of the poster children of the 90s bubble and still, nearly 20 years later, hasn't made it anywhere near its 2000 peak.

For fantastic reading on the dot.com bubble, this 1999 paper from Cliff Asness of AQR is an absolute must read:

https://papers.ssrn.com/sol3/papers.cfm ... _id=240371
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Re: The new and bigger irrational exuberance

Post by PaloRojo »

Ray_McKigney wrote: Sun Jan 10, 2021 4:17 pm 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

:sharebeer
Yes, he's one of the latest to compare equity yields to bond yields, and has contradicted years of his own research in the process. People were doing the same thing in the late 90s. See the Cliff Asness link posted above.
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Re: The new and bigger irrational exuberance

Post by 000 »

PaloRojo wrote: Tue Jan 12, 2021 1:07 pm
flyingaway wrote: Sun Jan 10, 2021 3:38 pmI 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).
In my opinion, this is the single largest difference between 1999 and 2021. In '99, you could at least still buy TIPS for 4% and munis for 10%. Today, it really does seem like TINA which, in my view as a market skeptic, is the most compelling argument equity bulls have.
I am beginning to think TINA is a bogus argument.

Why didn't these conservative investors lock in bonds of an appropriate duration before? Then they wouldn't have to face TINA...

OTOH, if TINA is true, then it implies lower expected returns for all asset classes, meaning that stocks aren't an alternative at all...

Paradox detected? :twisted:
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Re: The new and bigger irrational exuberance

Post by willthrill81 »

spanky123 wrote: Tue Jan 12, 2021 1:10 pm
willthrill81 wrote: Tue Jan 12, 2021 12:43 pm
spanky123 wrote: Sun Jan 10, 2021 2:20 pm
dmcmahon wrote: Sun Jan 10, 2021 1:48 pm

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? :confused
If you're very confident that it's overvalued, then logically you might consider shorting the stock. But that entails lending costs, the fact that you can lose more than 100% of your investment, and the reality that 'the market can remain irrational longer than you can remain solvent'. So I wouldn't recommend it anyway.

For the record, I thought that Amazon was ridiculously overvalued when it was $1,000/share. Thankfully, I didn't act on that belief.
It could stay overvalued for a long time.
Aye, therein lies the rub. Valuations are not reliably mean-reverting at the micro or macro level.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: The new and bigger irrational exuberance

Post by TheTimeLord »

PaloRojo wrote: Tue Jan 12, 2021 1:11 pm
lostdog wrote: Sun Jan 10, 2021 4:08 pm 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.
That's a gross oversimplification. Cisco, for example, was one of the poster children of the 90s bubble and still, nearly 20 years later, hasn't made it anywhere near its 2000 peak.

For fantastic reading on the dot.com bubble, this 1999 paper from Cliff Asness of AQR is an absolute must read:

https://papers.ssrn.com/sol3/papers.cfm ... _id=240371
From my perspective Cisco is irrelevant unless you are buying individual stocks, what is the market cap of the top networking players today versus 2000 is the metric I would be interested in?
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valuables
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Re: The new and bigger irrational exuberance

Post by valuables »

Recent article from the economist says:
- Nobody actually knows anything
- Mostly bullish, we're in an early stage recovery
- Bond yields are on the rise which indicates growth
- The stimulus is estimated to increase GDP by +2%

The main risks right now are:
1. The covid recovery economy, and fear of no additional stimulus
2. Possible post covid inflation bump due to pent up demand
3. Increased debt load

But those are counteracted by:
1. Congressional control by incoming President's party may lead to more stimulus
2. Probably will only be a short term issue
3. Interest rates will be low for a while, and Gov will continue to buy bonds
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Re: The new and bigger irrational exuberance

Post by tmcc »

If you want to be afraid, be afraid of a dollar collapse from decades of deficit spending... not stock valuations.
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Re: The new and bigger irrational exuberance

Post by willthrill81 »

tmcc wrote: Tue Jan 12, 2021 1:32 pm If you want to be afraid, be afraid of a dollar collapse from decades of deficit spending... not stock valuations.
AFAIK, the US dollar is still the 'cleanest dirty shirt' around.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: The new and bigger irrational exuberance

Post by 3funder »

I feel rather prepared. My AA is as follows:

40% VTSAX (Total US Stock)
40% VTIAX (Total International Stock)
20% VBTLX (Total US Bond)
Global stocks, US bonds, and time.
PaloRojo
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Re: The new and bigger irrational exuberance

Post by PaloRojo »

000 wrote: Tue Jan 12, 2021 1:15 pm
PaloRojo wrote: Tue Jan 12, 2021 1:07 pm
flyingaway wrote: Sun Jan 10, 2021 3:38 pmI 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).
In my opinion, this is the single largest difference between 1999 and 2021. In '99, you could at least still buy TIPS for 4% and munis for 10%. Today, it really does seem like TINA which, in my view as a market skeptic, is the most compelling argument equity bulls have.
I am beginning to think TINA is a bogus argument.

Why didn't these conservative investors lock in bonds of an appropriate duration before? Then they wouldn't have to face TINA...

OTOH, if TINA is true, then it implies lower expected returns for all asset classes, meaning that stocks aren't an alternative at all...

Paradox detected? :twisted:
So, this is a fascinating paradox that is also touched on by Asness in the paper linked above. A big part of the TINA trade is the observation that equity yields, though at historic lows, are still in excess of bond yields, and that, due to TINA, investors have just come to accept lower stock returns going forward.

But, unlike a bond that can be held to maturity, the risk inherent with equities can become rapidly apparent, in which case, in Asness' words "the circular argument that they should be priced super expensively because they have no long-term risk disappears completely."

Regardless, even this thread has shown that people have difficulty pointing to alternatives. I'm actually partial to the Chris Cole left tail / right tail approach, wherein you hold instruments with significant convexity to hedge against deflationary / inflationary outcomes, perhaps in conjunction with a core equity holding in reasonably priced stocks.
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Re: The new and bigger irrational exuberance

Post by PaloRojo »

TheTimeLord wrote: Tue Jan 12, 2021 1:19 pm
PaloRojo wrote: Tue Jan 12, 2021 1:11 pm
lostdog wrote: Sun Jan 10, 2021 4:08 pm 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.
That's a gross oversimplification. Cisco, for example, was one of the poster children of the 90s bubble and still, nearly 20 years later, hasn't made it anywhere near its 2000 peak.

For fantastic reading on the dot.com bubble, this 1999 paper from Cliff Asness of AQR is an absolute must read:

https://papers.ssrn.com/sol3/papers.cfm ... _id=240371
From my perspective Cisco is irrelevant unless you are buying individual stocks, what is the market cap of the top networking players today versus 2000 is the metric I would be interested in?
Completely agree with your perspective. I was just pointing out that 1999 wasn't all about no-name companies with no balance sheets.
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Re: The new and bigger irrational exuberance

Post by fennewaldaj »

Random Musings wrote: Mon Jan 11, 2021 10:33 pm Margin use is pretty beefy. TSLA and BTC are talked about a lot. Yes, AAPL and others are generating cash, but in the past other firms were generating cash too. I'm sticking with my allocation that includes some small value tilt and intl exposure.

My hunch is that the LCG box will underperform for a while. It's had a heck of a run.

I also wonder if the large block of longer term BTC holders with 1,000 plus coins (if they still have their key) are not thinking about selling and diversifying. Right now, they are sitting on $35MM plus. It ain't real money until you cash out. The marginal utility of more wealth is very nominal at this point for them, but then again, all investors are not rational.

RM
I know one of the early (like circa 2011) investors in bitcoin. He has sold a fair amount and bought property in several places.
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Re: The new and bigger irrational exuberance

Post by 7eight9 »

MinnGuyInvesting wrote: Tue Jan 12, 2021 12:34 pm
spanky123 wrote: Sun Jan 10, 2021 2:20 pm
The tech stocks, i.e., Tesla, are not overvalued? :confused
Please tell me what stocks you are invested in right now that are not either:

A) A tech stock

or

B) Has a major competitor who is a "tech" stock.

All companies are tech stocks right now (or they sure as heck better be).
Philip Morris International Inc. (PM).

I guess maybe IQOS makes PM a tech stock :happy ? https://www.pmi.com/smoke-free-products ... ing-system
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Re: The new and bigger irrational exuberance

Post by Portfolio7 »

This isn't like 1999 at all IMHO, despite a couple parallels.

If you're a technical guy, I suspect you are all in right now. The setups are amazing. Broad based breakouts everywhere.
If you're a fundamentals guy, your outlook will depend upon how you interpret the macro environment, but most stocks I think look ok.
If you're a Boglehead, you're portfolio is dialed in to your risk tolerance and you're staying the course because whatever the truth is, you know you can't predict the direction of the markets.
"An investment in knowledge pays the best interest" - Benjamin Franklin
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Re: The new and bigger irrational exuberance

Post by gougou »

US energy stocks are cheap. You can also find quality companies selling around 10x to 15x P/E. IMO only some sectors are in bubble state so we should just avoid those sectors.

And I totally agree that international stocks are cheap. There are iron ore mining companies selling at 3x P/E right now which I am heavily invested.
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Re: The new and bigger irrational exuberance

Post by wolf359 »

PaloRojo wrote: Tue Jan 12, 2021 1:11 pm
lostdog wrote: Sun Jan 10, 2021 4:08 pm 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.
That's a gross oversimplification. Cisco, for example, was one of the poster children of the 90s bubble and still, nearly 20 years later, hasn't made it anywhere near its 2000 peak.

For fantastic reading on the dot.com bubble, this 1999 paper from Cliff Asness of AQR is an absolute must read:

https://papers.ssrn.com/sol3/papers.cfm ... _id=240371
This didn't sound right, because I owned Cisco back then. I had bought into it over a several year period. It took me 15 years to break even.

Then I looked it up, and you are correct. I simply didn't buy at the 2000 peak.

But most people don't invest all their money at a peak. If you have a systematic investment plan, you will build your positions over time, and you're more likely to work your way through crashes.

If you then combine the strategy with buying broadly diversified index funds, you'll sidestep most of the risks of investing in that one wrong company.
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Re: The new and bigger irrational exuberance

Post by wolf359 »

tmcc wrote: Tue Jan 12, 2021 1:32 pm If you want to be afraid, be afraid of a dollar collapse from decades of deficit spending... not stock valuations.
So what is the correct strategy for investing though a dollar collapse? Maybe the answer requires a different thread.
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Re: The new and bigger irrational exuberance

Post by dziuniek »

Valuethinker wrote: Tue Jan 12, 2021 7:31 am
dziuniek wrote: Mon Jan 11, 2021 11:10 pm
Normchad wrote: Sun Jan 10, 2021 5:36 pm
Nate79 wrote: Sun Jan 10, 2021 5:23 pm 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.....
Oh, I am not sure the majority of people thought the world was going to end.
Then they were not paying attention. You could feel the fear in the streets of London.

My Dad's broker was with one of the largest and most conservative banks in North America (Canadian HQ'd). He told me that in late September, the feeling among the staff was that the bank was probably bust, but hadn't told anyone.

The largest financial institutions in the world (RBS was something like no 4 in assets, worldwide) were on the brink of insolvency. I had friends going up the High Street at the weekend after Lehman, and opening accounts at each financial institution, depositing £32k in each (the deposit insurance limit at the time). One opened 10 accounts in a weekend. That's how scared everyone was -- these were people involved with financial markets every day.

Congress kicked out the TAARP. Wall Street voted by dropping 8%.

Alistair Darling, the Chancellor, asked his civil servants how bad it could get, and was told (on a Friday) there would be no money in the RBS ATMs by Monday morning.

Gordon Brown, our Prime Minister, spoke from the steps of Reuters-- October 8, 2008.

We could summarise his speech as "Things are bad. They might get worse. We shall do what is necessary. Should that be insufficient, we shall do more".

An American columnist wrote "Did Gordon Brown just save the world?".

Markets rallied. A question was answered by Rep Frank on the floor of the House (apparently that has legal status in the interpretation of the law in court), answering in the affirmative re the use of the TARP (original intent only to buy mortgage backed securities at market price from the banks) as to general purchase of financial instruments. The money could be used to provide equity to the banks.

The banks issued stock and other equity instruments, and the governments of the USA, UK and other countries bought them. The solvency crisis was addressed. Gordon Brown would address the Eurozone ministers, the first non-member national leader ever to do so.

The aftershocks and the recession would be brutal, with long lasting political and economic effects we still confront today.

The Eurozone had yet to face the insolvency of Greece and its first existential crisis. That would come in the second wave.

But the system survived.

I hope never to live through such financial events again. It was our Crash of 1929. It was our default by Credit Anstalt in 1932. It was our money market panic of summer of 1914. It was our Mexico Crash of 1994. Our SE Asia Crash.
I was specifically referring to 'the world ending'. Most people aren't even in the stock market. The real effect on 'most people' was pretty high unemployment (I guess 10% is high - that's country specific though). Also the effect on 'most people' outside of unemployment was the hit to real estate prices.

Even then, that's far from world-ending.
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Re: The new and bigger irrational exuberance

Post by dmcmahon »

000 wrote: Tue Jan 12, 2021 1:15 pm
PaloRojo wrote: Tue Jan 12, 2021 1:07 pm
flyingaway wrote: Sun Jan 10, 2021 3:38 pmI 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).
In my opinion, this is the single largest difference between 1999 and 2021. In '99, you could at least still buy TIPS for 4% and munis for 10%. Today, it really does seem like TINA which, in my view as a market skeptic, is the most compelling argument equity bulls have.
I am beginning to think TINA is a bogus argument.

Why didn't these conservative investors lock in bonds of an appropriate duration before? Then they wouldn't have to face TINA...

OTOH, if TINA is true, then it implies lower expected returns for all asset classes, meaning that stocks aren't an alternative at all...

Paradox detected? :twisted:
Not paradoxical at all. If all assets are expected to produce lower nominal yields, then conventional valuation analysis is out the window and it’s a guessing game as to what anything, other than hard assets, is worth. I think that’s my point - unlike the 2000 bubble top, we are now in a Japan-like negative yielding world for cash and bonds. I’m not saying we’re in the same situation as infamous examples from history, but imagine you lived in a country undergoing something akin to Weimar Germany. Do you hang on to paper money or the equivalent? Do you accept interest on debt instruments that are lower than the inflation rate? At what point do you just start buying absolutely anything you can before your money loses all its value? So OK we aren’t Weimar Germany, but let’s say you’re old enough to remember the 1970s in the USA. Do you wait until inflation is running at 10% before you start - buying everything in sight?
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Re: The new and bigger irrational exuberance

Post by willthrill81 »

wolf359 wrote: Tue Jan 12, 2021 4:31 pm
tmcc wrote: Tue Jan 12, 2021 1:32 pm If you want to be afraid, be afraid of a dollar collapse from decades of deficit spending... not stock valuations.
So what is the correct strategy for investing though a dollar collapse? Maybe the answer requires a different thread.
Ex-U.S. stock, foreign currencies, and gold would be my guesses.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: The new and bigger irrational exuberance

Post by tmcc »

willthrill81 wrote: Tue Jan 12, 2021 9:57 pm
wolf359 wrote: Tue Jan 12, 2021 4:31 pm
tmcc wrote: Tue Jan 12, 2021 1:32 pm If you want to be afraid, be afraid of a dollar collapse from decades of deficit spending... not stock valuations.
So what is the correct strategy for investing though a dollar collapse? Maybe the answer requires a different thread.
Ex-U.S. stock, foreign currencies, and gold would be my guesses.
Ya. I don’t have the bullet proof answer to this one. I like the idea of bitcoin too but it would likely be regulated out of existence in a dollar collapse, probably same as gold.
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Re: The new and bigger irrational exuberance

Post by whodidntante »

What you really need to worry about is exuberant irrationals. :happy
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Re: The new and bigger irrational exuberance

Post by checkyourmath »

For anyone that thinks we are the next Japan go check the BOJ's balance sheet versus the Nikkei's market cap. The Fed can afford the land of billionaires. We can all pretend though!
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Re: The new and bigger irrational exuberance

Post by Dottie57 »

Valuethinker wrote: Tue Jan 12, 2021 7:31 am
dziuniek wrote: Mon Jan 11, 2021 11:10 pm
Normchad wrote: Sun Jan 10, 2021 5:36 pm
Nate79 wrote: Sun Jan 10, 2021 5:23 pm 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.....
Oh, I am not sure the majority of people thought the world was going to end.
Then they were not paying attention. You could feel the fear in the streets of London.

My Dad's broker was with one of the largest and most conservative banks in North America (Canadian HQ'd). He told me that in late September, the feeling among the staff was that the bank was probably bust, but hadn't told anyone.

The largest financial institutions in the world (RBS was something like no 4 in assets, worldwide) were on the brink of insolvency. I had friends going up the High Street at the weekend after Lehman, and opening accounts at each financial institution, depositing £32k in each (the deposit insurance limit at the time). One opened 10 accounts in a weekend. That's how scared everyone was -- these were people involved with financial markets every day.

Congress kicked out the TAARP. Wall Street voted by dropping 8%.

Alistair Darling, the Chancellor, asked his civil servants how bad it could get, and was told (on a Friday) there would be no money in the RBS ATMs by Monday morning.

Gordon Brown, our Prime Minister, spoke from the steps of Reuters-- October 8, 2008.

We could summarise his speech as "Things are bad. They might get worse. We shall do what is necessary. Should that be insufficient, we shall do more".

An American columnist wrote "Did Gordon Brown just save the world?".

Markets rallied. A question was answered by Rep Frank on the floor of the House (apparently that has legal status in the interpretation of the law in court), answering in the affirmative re the use of the TARP (original intent only to buy mortgage backed securities at market price from the banks) as to general purchase of financial instruments. The money could be used to provide equity to the banks.

The banks issued stock and other equity instruments, and the governments of the USA, UK and other countries bought them. The solvency crisis was addressed. Gordon Brown would address the Eurozone ministers, the first non-member national leader ever to do so.

The aftershocks and the recession would be brutal, with long lasting political and economic effects we still confront today.

The Eurozone had yet to face the insolvency of Greece and its first existential crisis. That would come in the second wave.

But the system survived.

I hope never to live through such financial events again. It was our Crash of 1929. It was our default by Credit Anstalt in 1932. It was our money market panic of summer of 1914. It was our Mexico Crash of 1994. Our SE Asia Crash.
I wasn’t in London, but in U.S.. I agree - I really thought the financial world was crumbling. Retirement account was cratering. It looked bad. I had some sleepless nights.
make_a_better_world
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Re: The new and bigger irrational exuberance

Post by make_a_better_world »

As has been said in this thread, almost every major asset class shows worrisome signs. There are so many confounding variables and none of us have a crystal ball.

This might be a good time to mimic an "All Weather" portfolio Ray Dalio used at Bridgewater. For those unfamiliar, it is a portfolio with multiple asset classes that are poorly correlated with each other to increase the probability of preserving a positive return through turmoil.

Dalio proposes that the following four things affect asset value:

Inflation
Deflation
Rising economic growth
Declining economic growth

Based on these, Dalio expects we can see 4 “seasons” of the economy:

Higher than expected inflation.
Lower than expected inflation.
Higher than expected economic growth.
Lower than expected economic growth.

Here's what a mix might look like:
https://www.optimizedportfolio.com/all- ... portfolio/

Explanation of the logic:
https://www.youtube.com/watch?v=Nu4lHaS ... vestopedia

I'd be curious what some of you think about it. I'm pontificating more than taking action.
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Rob1
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Re: The new and bigger irrational exuberance

Post by Rob1 »

Image

Note the dot-com bubble vs. Vanguard’s fair value CAPE.

Not shown and more up-to-date: Per a recent Vanguard webinar, Vanguard’s Joe Davis stated the US market is currently at the top of Vanguard’s fair value CAPE range, but nowhere near the dot-com bubble.
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TheTimeLord
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Re: The new and bigger irrational exuberance

Post by TheTimeLord »

Threads like this always make me want to post "Oh no, we are all going to die" in sarcasm font. IMHO we are always in an either inflating, deflating or bursting bubble. That is just the way it is, the pendulum is always swinging too far one way or another because of the imperfectly known future. So best I can tell you have 2 choices. You can be a buy and hold investor and ride these swings out or you can make adjustments based on your best guesses about future market movements. If anyone knows of another option please reply to my post.

Thank you for letting me get that out of my system. Remember it is quite possible I am a simplistic idiot.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
tmcc
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Re: The new and bigger irrational exuberance

Post by tmcc »

willthrill81 wrote: Tue Jan 12, 2021 1:49 pm
tmcc wrote: Tue Jan 12, 2021 1:32 pm If you want to be afraid, be afraid of a dollar collapse from decades of deficit spending... not stock valuations.
AFAIK, the US dollar is still the 'cleanest dirty shirt' around.
Agreed. It’s one of those things where it’s good until it’s not. Hopefully the other shoe doesn’t drop in my lifetime.
jarjarM
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Re: The new and bigger irrational exuberance

Post by jarjarM »

Rob1 wrote: Wed Jan 13, 2021 2:30 am

Note the dot-com bubble vs. Vanguard’s fair value CAPE.

Not shown and more up-to-date: Per a recent Vanguard webinar, Vanguard’s Joe Davis stated the US market is currently at the top of Vanguard’s fair value CAPE range, but nowhere near the dot-com bubble.
Great info and chart, thanks for sharing. :beer
nigel_ht
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Re: The new and bigger irrational exuberance

Post by nigel_ht »

firebirdparts wrote: Tue Jan 12, 2021 11:34 am
dziuniek wrote: Mon Jan 11, 2021 11:10 pm
Normchad wrote: Sun Jan 10, 2021 5:36 pm
Nate79 wrote: Sun Jan 10, 2021 5:23 pm 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.....
Oh, I am not sure the majority of people thought the world was going to end.
I too, having lived through 2008, think it's a weird take. I hear it all the time. Collapse of the world financial system is purely a paper problem. I'm serious. Purely a paper problem. I don't see how you compare that to not-paper problems like war, pestilence, asteroids. I'm serious. Obviously, bank failures do rank high on the paper problem top 10, but fortunately, there were some competent adults that had taken an interest in the history of money, and those in a position to do so had some ideas about how to unwind it. I do worry about the next paper problem when the remaining tiny number of adults dwindles to zero.

I never saw such an obvious buying opportunity. Unfortunately, I was 100% equities on the way down, ha ha.
"Purely paper problems" can cause real physical problems. 1929 and Great Depression is an easy example. The German Weimar Republic paper problem turned into a real problem for everyone.

Had 2008 resulted in the collapse of the US financial system and then the economy then many folks would be out of work as we could have faced huge social unrest. Also, the largest military in the world will have been defunded and we'd have to pull back nearly everywhere leading to loss of super power status and likely the end of the US dollar as reserve currency. The current global balance of power would have been disrupted likely leading to opportunist taking military advantage of the vacuum.

That's what 2010 could have looked like.
nigel_ht
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Re: The new and bigger irrational exuberance

Post by nigel_ht »

dmcmahon wrote: Tue Jan 12, 2021 9:52 pm
I’m not saying we’re in the same situation as infamous examples from history, but imagine you lived in a country undergoing something akin to Weimar Germany. Do you hang on to paper money or the equivalent? Do you accept interest on debt instruments that are lower than the inflation rate? At what point do you just start buying absolutely anything you can before your money loses all its value? So OK we aren’t Weimar Germany, but let’s say you’re old enough to remember the 1970s in the USA. Do you wait until inflation is running at 10% before you start - buying everything in sight?
We aren't anywhere close to Weimar and 10% is nothing as I was around in 1970 however but Venezuela currently is suffering from hyperinflation...and Zimbabwe before that (and likely will again).

What you should do in that scenario is take whatever hard assets you have and leave the country. If folks really think that's a possibility then they should be planning for that.

But to me, that's kinda like planning for the zombie apocalypse but not buying new batteries for the smoke detectors in your house. Address the immediate and most likely risks before worrying about highly unlikely things that require a lot of resources and effort to mitigate.
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