U.S. stock valuations haven’t been this extreme since 1929 and 2000
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Re: U.S. stock valuations haven’t been this extreme since 1929 and 2000
#2The 10 year US bonds haven't had such low rates and for such a long time at least since 1962 (as far back as the Yahoo Finance data goes). Inflation is low. Your belief in the valuation should be linked to how you feel about rates and inflation. If rates stay this low for a very extended period than the valuation might be on the low side. At any rate, these are unchartered territories in terms of investment returns and valuations.
EDIT: even going back to 1912 the 10 year rates are unusually low for an extended period. The closest historic period is during the 1940's valuations back then (P/E ratios) were lower (peaking around 1946).
Re: U.S. stock valuations haven’t been this extreme since 1929 and 2000
#3Assuming the market keep on growing over time as it has done for a very long time, all time highs aren't something spectacular or unusual in the stock market, in fact it occurs almost on a daily basis.
As an analogy; if you go to a grocery store, all the items on the shelves are at an all time high price, but no one is expecting the price of milk to drop drastically just because it's at an all time high.
Re: U.S. stock valuations haven’t been this extreme since 1929 and 2000
#4Assuming the market keep on growing over time as it has done for a very long time, all time highs aren't something spectacular or unusual in the stock market, in fact it occurs almost on a daily basis. As an analogy; if you go to a grocery store, all the items on the shelves are at an all time high price, but no one is expecting the price of milk to drop drastically just because it's at an all time high.
The price of milk is not generally subject to speculative bubbles, though. When it is (let's say some kind of shortage rumor or disaster prep) the price indeed crashes after reaching absurd levels.
Re: U.S. stock valuations haven’t been this extreme since 1929 and 2000
#5Even if there is a global downturn, the US economy will remain strong. Where else is capital going to go? If developing economies go bust, developed nations like the US will buy up their assets in a fire-sale.
Re: U.S. stock valuations haven’t been this extreme since 1929 and 2000
#6Assuming the market keep on growing over time as it has done for a very long time, all time highs aren't something spectacular or unusual in the stock market, in fact it occurs almost on a daily basis. As an analogy; if you go to a grocery store, all the items on the shelves are at an all time high price, but no one is expecting the price of milk to drop drastically just because it's at an all time high.
The price of milk is not generally subject to speculative bubbles, though. When it is (let's say some kind of shortage rumor or disaster prep) the price indeed crashes after reaching absurd levels.
I wouldn't call where we are a speculative bubble. If you look at the P/E or dividend rates of stocks and compare that to other investments you'll see they are still favourable. So a decision to e.g. own MSFT stock that a higher dividend than you'd get in a 10 year bond, while not without risk, isn't pure speculation. MSFT has a business with good prospects and it makes money and pays it back to you. Where else do you put your money?
Re: U.S. stock valuations haven’t been this extreme since 1929 and 2000
#7We are long overdue for a correction. Put your money into bonds and buy into the fire sales in inevitable upcoming crash.
Re: U.S. stock valuations haven’t been this extreme since 1929 and 2000
#8The miscalculation that I believe economists are making is the massive shift in leverage between the laborers and the owners. Historically, the two were balanced to the point that creating greater economic growth would tip the scales in the laborers' favor, thus increasing wages and inflation. What's happening now is that, due to many factors including outsourcing, illegal immigration, lobbying(bribery), capital concentration, anti-union legislation, anti-small business legislation, and a lot more, the scales are tipped so far in big business's favor that monetary policy is having a limited effect.
I honestly don't know if this trend can be reversed without something major happening.
Re: U.S. stock valuations haven’t been this extreme since 1929 and 2000
#9The 10 year US bonds haven't had such low rates and for such a long time at least since 1962 (as far back as the Yahoo Finance data goes). Inflation is low. Your belief in the valuation should be linked to how you feel about rates and inflation. If rates stay this low for a very extended period than the valuation might be on the low side. At any rate, these are unchartered territories in terms of investment returns a…
(US Loan) interest rates (which are related to bond prices) are around the lowest they have been in recorded history (~5000 years): https://www.businessinsider.com.au/chart-5000-years-of-inter...
Re: U.S. stock valuations haven’t been this extreme since 1929 and 2000
#10We are long overdue for a correction. Put your money into bonds and buy into the fire sales in inevitable upcoming crash.
Bonds may not be a safe haven