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The Hazards of Asset Allocation in a Late-Stage Major Bubble

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Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble

#21

Post by throw0101a »

joncrane wrote: post #4

This is a great article. Note it's from January 5th, and it's extremely speculative. But certainly at least worth adding to the overall amount of signals that stock investors are thinking. I think I remember someone saying that in 1929 when the shoeshine boys were giving stock advice that that's how someone knew the bubble was about to burst. Lately I've been discussing investment strategies with the people that work…

> I think I remember someone saying that in 1929 when the shoeshine boys were giving stock advice that that's how someone knew the bubble was about to burst.

President JFK's father:

> While sitting in the shoeshine chair, Kennedy Sr. was alarmed to have the shoeshine boy gift him with several tips on which stocks he should own — yes, a shoeshine boy playing the stock market.

> This unsolicited advice resulted in a life-changing moment for Kennedy Sr. who promptly went back to his office and started unloading his stock portfolio.

> In fact, he didn’t just get out of the market, he aggressively shorted it — and got filthy rich because of it during the epic crash that soon followed.

* https://www.businessinsider.com/how-to-spot-stock-market-bub...

* https://en.wikipedia.org/wiki/Joseph_P._Kennedy_Sr.#1929_Wal...

Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble

#22

Post by edoceo »

bluedevil2k wrote: post #12
lubos wrote: post #5

Looking at historical S&P 500 to Gold ratio, stocks are definitely more expensive but nowhere near dotcom frenzy. Either we see market correction or gold is undervalued and will catch up. In that case there might be no stock market crash. https://www.macrotrends.net/1437/sp500-to-gold-ratio-chart

Gold is not a suitable comparison to stocks - it gets brought up on here all the time. Gold is not uncorrelated to the market. Gold is not a store of value. Gold is a speculative investment with a great marketing team.

BTC and Doge enter the chat...

Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble

#23

Post by Negitivefrags »

joncrane wrote: post #4

This is a great article. Note it's from January 5th, and it's extremely speculative. But certainly at least worth adding to the overall amount of signals that stock investors are thinking. I think I remember someone saying that in 1929 when the shoeshine boys were giving stock advice that that's how someone knew the bubble was about to burst. Lately I've been discussing investment strategies with the people that work…

The 2021 signal is all the high school students telling you what altcoins to buy.

And just wait till you see what is going on with Decentralised Finance.

https://coinmarketcap.com/yield-farming/

Sort that by Highest APYs. It fluctuates all the time but the numbers are getting as high as 1,000,000% APY. There is no world in which that can be anything but a Ponzi scheme.

People are actually buying into these things.

Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble

#24

Post by sfblah »

throw0101a wrote: post #14

Just keep buying. A post by Nick Maggiulli in 2017: > Many investors focus on the right time to buy stocks because they don’t want to buy near a peak in case of a future market crash. I understand the feeling. With the market near all time highs in early 2017, it can be tempting to hold off until there is a larger negative adjustment in prices. > The only problem with this approach is the market could go up for a sig…

This line of reasoning assumes the future looks like the past. Which is generally a solid mode of thinking.

But, if the future looks like the past, shouldn't it give you pause that on many metrics markets are substantially more richly valued than at any peak in the last 100 years?

You can't have it both ways. Either the past is useful or it's not. If it's useful, then you have two conflicting data points -- market timing doesn't work, and we're at the top of a big bubble. If the past isn't useful, then neither data point is valid.

Now, you'll probably argue that even if it is a big bubble, the past suggests it always comes back. Setting aside the obvious fact that it's mathematically better to buy after the bubble bursts than before, you're in the same conundrum. Does the past matter or not? If it does, then yes you should expect to recoup the money eventually from buying at the top (though, if you bought at the top in 1929, you had to wait until the 1950s to get back to even). If the past doesn't matter and this time is different, then you can't say anything productive about the future.

Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble

#25

Post by nabla9 »

>Robert Shiller – who correctly and bravely called the 2000 and 2007 bubbles and who is one of the very few economists I respect – is hedging his bets this time, recently making the point that his legendary CAPE asset-pricing indicator (which suggests stocks are nearly as overpriced as at the 2000 bubble peak) shows less impressive overvaluation when compared to bonds. Bonds, however, are even more spectacularly expensive by historical comparison than stocks. Oh my!

Banks are OK, household debt levels are OK. Corporate bonds are the issue in the current economy. Nonfinancial corporate debt to GDP ratio: hhttps://fred.stlouisfed.org/graph/?g=B5NG

* There are too many zombie companies walking around (indebted company that is able to repay the interest on its debts but not repay the principal)

* Institutional bond investors have chased profits to the lowest possible bond rating they are allowed to invest.

When something changes and ratings are downgraded, institutional investors are forced to sell these companies at the same time. Corporate bond market liquidity freezes overnight. Berkshire Hathaway will by bonds for cents per dollar...

Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble

#26

Post by papabrown »

xyzzyz wrote: post #17
papabrown wrote: post #11

Earlier quoted context omitted.

Or, it could just be that far more people are investors today than there were in 1929. According to this site, only about 10% of Americans owned stock or speculated in the markets in 1929. >In fact, only approximately 10 percent of American households held stock investments and speculated in the market; yet nearly a third would lose their lifelong savings and jobs in the ensuing depression. https://courses.lumenlearn…

I presume most of today’s stock owners are actually owners of 401k account which invests in something like Vanguard Target retirement fund. As a result, they know pretty much nothing about stocks, yet they do own them.

I would presume that as well. However, that doesn't negate the fact that 10% vs 55% is a considerable gap.

In 1929 if the shoeshine guy was giving you stock tips, it signaled a very different level of market euphoria than today when your gym trainer is talking about stocks.

Also, today we live in a world where there's just so much more accessibility to information. Only about 1.3% of the planet has ever owned Bitcoin. About 13% of Americans have ever owned Bitcoin but 90% of Americans surveyed have heard of Bitcoin.

I don't mean this to be about Bitcoin, only trying to point out the massive gap between something that is relatively niche, and the number of news articles/stories, discussion, etc about it.

Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble

#27

Post by Clewza313 »

bluedevil2k wrote: post #12
lubos wrote: post #5

Looking at historical S&P 500 to Gold ratio, stocks are definitely more expensive but nowhere near dotcom frenzy. Either we see market correction or gold is undervalued and will catch up. In that case there might be no stock market crash. https://www.macrotrends.net/1437/sp500-to-gold-ratio-chart

Gold is not a suitable comparison to stocks - it gets brought up on here all the time. Gold is not uncorrelated to the market. Gold is not a store of value. Gold is a speculative investment with a great marketing team.

Gold has two things going for it: there's a baseline of "real" value underpinning it (not just industrial use, but lots of fast-growing Asian countries relying on it for dowries etc), and historically gold holds up quite well when everything else is doing badly. However, it's also fundamentally unproductive (no dividends, no real capital growth), so it's going to be a losing bet most of the time.

Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble

#28

Post by imnotlost »

Do you want to under-perform during all bull markets so it hurts less during the corrections?

If you stayed invested in the broad market through any bubble-pop you would be better off than aggressive diversification and hedging. Unless you can reliably time the tops and bottoms.

Where else will you invest? China? India? Rest of Asia? Europe? South America? Africa? Specific commodities?

Do you believe the next generations in the US will continue to create value or do you think this is the beginning of a perpetual decline?

Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble

#29

Post by viburnum »

Where else are rich people going to park their money? The demand for investable assets has gone way up because rich people have gotten much richer, and rich people around the world (such as newly minted emerging market billionaires) often prefer American assets for liquidity and good legal protections. I'm sure these investors would prefer that stocks earn more than 2.5% but that's just the going rate now. What alternatives do they have? Bonds yield basically nothing.

Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble

#30

Post by viburnum »

slt2021 wrote: post #15

it is not equity that is overpriced. it is that printed dollar that is overpriced (cash is trash). any bond guarantees long-term loss. In 1990, 2k, 2008 investors could escape from equities to bonds with 6% yield, but now they have nowhere to go. That concludes that this bubble will continue as long as interest rate remains near zero. Federal Reserve basically cornered the entire market into equities, investors have…

Why were bond interest rates ever that high in the first place?
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