We're approaching year-end when there's typically some inflows resulting from 401k and IRA investments. Does this cash sit on the sidelines waiting for the crash, or does it go into the market?
What to Worry About in This Surreal Bull Market
111–120 of 223 posts
Re: What to Worry About in This Surreal Bull Market
#112Earlier quoted context omitted.
It will happen before 2020, the question is when exactly it will hit. My money is on late 2018 or early 2019. What to do before then? Don't have any money in US stocks. Diversify both geographically and sector-wise, cash out, be ready to invest when stocks crash through the floor, to ride the wave when they inevitably rise again. The real trick is spotting who's going to rise again and who's going to be left behind.…
> invest in renewable energy and related sectors Isn't the problem in investing in that that there's really no way to know which particular business will come out on top here since there really isn't any large barriers of entry?
That's what hedging is for, you bet that for example, in the overall energy landscape, renewals are going to go up more than "legacy" energy companies, but still protect yourself from overall sector moves.
Re: What to Worry About in This Surreal Bull Market
#113Honest question: is there any unavoidable reason why there cannot be a permanent bull market? I mean, apart from empirical/historical observation reasons (I don't find those very compelling, as some stuff in economics seems to never happen until it happens). Given the low interest rates, people are growingly investing in diversified stocks to obtain profits in the long term. Index funds are growing, which don't even…
> is there any unavoidable reason
Unless the economy fully decouples from energy and matter [1], then Thermodynamics [2]. Solutions to this include Steady State Economy, reduction of population or the decoupling mentioned above (for example making our lives virtual)
[1] https://jancovici.com/wp-content/uploads/2016/04/energie_gra...
[2] https://dothemath.ucsd.edu/2011/07/galactic-scale-energy/
edit: Obviously my answer is meant long term, as in a couple hundred years.
Re: What to Worry About in This Surreal Bull Market
#114The next market recession will happen the same as the previous ones: some lucky people will predict it, most won't, and everyone will in hindsight declare how obvious the signs were. The best strategy is still to diversify your investments, keep enough emergency assets to ride the wave, and not worry about it.
>diversify your investments Diversify into what though? Once market crashes, it takes everything down with it.
Healthcare index funds weathered the last recession very well (e.g. https://personal.vanguard.com/us/funds/snapshot?FundIntExt=I... )
Re: What to Worry About in This Surreal Bull Market
#115Earlier quoted context omitted.
It explains each of the indicators on the page. Click the "Market Overvaluation" button (albeit with a pretty poor UI and terrible URL support so I can't link it). It's basically the value of US companies on the stock market divided by the GDP, $27 trillion / $20 trillion = 135%. Although it makes you wonder about if all that stashed money overseas is having a significant impact on that.
Is the value of stock supposed to equal the GDP? It is my understanding that the value of a stock should be equal to present value of future cash flows. If those future cash flows are growing faster than the discount rate then a value higher than 100% of GDP is to be expected.
Agreed. I've never come across this particular metric before, but intuitively I would have expected something more akin to a P/E ratio in the 10's or even 20's, not a factor of 1x.
Can anyone explain here why the stock market cap isn't much, much higher than a single year's GDP?
Is it because GDP is essentially "revenue" while market cap is "discounted future profits" -- and thus 20 years of 5% profit is going to be on the same order of magnitude of 1 year of revenue?
Re: What to Worry About in This Surreal Bull Market
#116The next market recession will happen the same as the previous ones: some lucky people will predict it, most won't, and everyone will in hindsight declare how obvious the signs were. The best strategy is still to diversify your investments, keep enough emergency assets to ride the wave, and not worry about it.
>diversify your investments Diversify into what though? Once market crashes, it takes everything down with it.
This is not necessarily true. To avoid volatility, invest across asset classes with low correlation [1]. E.g., bonds will probably not tank when U.S. equities do.
[1] https://www.investopedia.com/terms/c/coefficientofvariation....
Re: What to Worry About in This Surreal Bull Market
#117Honest question: is there any unavoidable reason why there cannot be a permanent bull market? I mean, apart from empirical/historical observation reasons (I don't find those very compelling, as some stuff in economics seems to never happen until it happens). Given the low interest rates, people are growingly investing in diversified stocks to obtain profits in the long term. Index funds are growing, which don't even…
[deleted]
Re: What to Worry About in This Surreal Bull Market
#118I'd love to know how far away from the next crash people think we are. And where they think is a safe place to put money when that happens.
It will not happen before 2020, this market could easily run for another decade.
Back in 2000 in a library I saw a book by 2 economists that had Nobel Prize. The second part of the title was something like "Are you ready for the next 20 years of uninterrupted growth ?".
Then one year later we had the .com crash :-)
Re: What to Worry About in This Surreal Bull Market
#119Honest question: is there any unavoidable reason why there cannot be a permanent bull market? I mean, apart from empirical/historical observation reasons (I don't find those very compelling, as some stuff in economics seems to never happen until it happens). Given the low interest rates, people are growingly investing in diversified stocks to obtain profits in the long term. Index funds are growing, which don't even…
Economy is tied to real consumption of finite resources. As we mine, fish, over harvest, burn, etc. our way out of some resources, we tend to find substitutes or other efficiencies to begin again.
But... there is the question of whether our economic growth brings us closer to the absolute carrying capacity of spaceship Earth.
So yeah, economic growth can’t continue forever without hitting some bio-physical constraints. But then maybe we’ll take to the stars. Or maybe we’ll crash hard and have exhausted the readily available and easily used resources, and be unable to sustain a large technological society.
Re: What to Worry About in This Surreal Bull Market
#120After basically 0% net growth in the market for over a year leading up to the election, there has been a 25% boom beginning exactly on the day after Trump won. That is no coincidence. The markets are anticipating Trump's promised massive deregulatory push (already well underway), tax cuts, a more union-hostile Justice Department and NLRB, and other business-friendly changes.
The funny thing is that most of those things have not happened yet and the first market reaction on election night was that Trump’s victory was a very bad thing.