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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

#51

Post by PragmaticPulp »

Negitivefrags wrote: post #23
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.

The strange thing about Ponzi schemes is that they can be very popular, even if participants know they're join a Ponzi scheme.

The MMM Global ponzi scheme has been operating in the open for about a decade: https://en.wikipedia.org/wiki/MMM_Global

Ponzi schemes benefit greatly from a public perception that "all markets are rigged". Ponzi schemes can feel like a rigged game where they have a chance to get in on the ground floor of a rigged game. They also benefit from false equivalencies such as "after all, nothing good lasts forever" to make ponzi schemes feel like just another bull market opportunity that won't last forever.

It's akin to gambling. Many entrants tell themselves they'll only allocate as much money as they have to lose, or that they'll withdraw their initial investment after the first 100% gain. Sadly, they usually get overconfident when the scheme doesn't immediately collapse and end up investing far more than they would normally be willing to risk.

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

#52

Post by boh »

Bubbles suggest "irrational exuberance" but in this instance, equity values are actually operating off of a legitimate logic. Bond yields are low so investors are putting more of their money into equities. Equity centered index funds and ETFs have also grown in popularity. Sure individual stocks might be bubbling, but the market as a whole is operating within an environment that's narrowed growth within certain asset classes.

Saying "we're in a bubble" is always technically right since stock prices rarely reflect actual company value, unfortunately this article doesn't offer much insight beyond the obvious.

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

#53

Post by icelancer »

nmfisher wrote: post #49
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…

On the other hand, if you bought into the Nikkei in the late 80s/early 90s, you'd still be in negative returns 30 years later .

Yeah, people seem to ignore this part of the argument and just focus on US equities. There was a time not long ago - but long enough that most 20/30-somethings on this site don't study - that Japan was the obvious future steward of the technology age which even led to spikes in Asian-American hate crimes and lax policies of those events (Vincent Chin comes to mind), culminating in the clearly-better Japanese auto industry and their breakthrough JIT manufacturing methods.

A few years later, their economy crashed (along with ours), but ours recovered through various means, mainly immense untapped natural resources, net inflow of immigrants (skilled and otherwise), the Internet, and well, Andy Grove, if we want to give credit to at least one individual here.

Japan is now a funny country across the ocean we marvel for their cultural weirdness and spotless streets. It wasn't like that just 40 years ago, and the idea that the United States can't go down that road for some reason is... well, naively optimistic.

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

#54

Post by boh »

yellowstuff wrote: post #35

> I expect once again for my bubble call to meet my modest definition of success: at some future date, whenever that may be, it will have paid for you to have ducked from midsummer of 2020. Two can play at this game. I predict that at some future date the stock market will be higher than it is today.

His quote, like the whole article, is just feigned insight. I guess if stocks go down 6 months or five years from now he can say: "see I told you so".

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

#55

Post by slt2021 »

icelancer wrote: post #50
slt2021 wrote: post #44

Earlier quoted context omitted.

and look at gigantic bubble that was created in crypto, because of that asset rotation - do you think crypto (which is funny money) is fairly valued as compared to real companies with real cash flows? the only right strategy is what China have been doing - they have been selling US treasuries and buying real assets left and right across Asia and Africa - securing their grip on rare earth minerals, gold/silver, commod…

No question. I think you can make the argument Ethereum (and to a lesser extent, Polkadot) could be fairly valued due to what it represents (platform for distributed applications, I refuse to use the shorthand phrase for it or decentralized finance), but BTC is simply just gold / reserve currency in nature and always will be per the Blockstream team's desires. So there's no way BTC's valuation relative to other store…

if there is new better crypto with some guarantees of value - all BTC folks will sell at the top and jump ship. For example imagine European central bank creates its own "green" reserve crypto mined only with green energy and guarantees free circulation and acceptance in eurozone.

Embrace-Extend-Extinguish framework can be applied to BTC to kill it with a better alternative, and the higher price for BTC is the stronger incentives to sell at the peak and move elsewhere to more stable place

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

#56

Post by nabla9 »

lumost wrote: post #31
nabla9 wrote: post #25

>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 expe…

Wouldn't this force the fed to become the lender to these zombie firms or let the institutions take a bath? I can't imagine corporate bankruptcies resulting in corrective change if the fed is the principal lender.

Fed already opened corporate bond-buying program and used it. It's called Secondary Market Corporate Credit Facility (SMCCF). It only applies to investment-grade debt. Going below that and buying junk would be a big step.

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

#57

Post by icelancer »

slt2021 wrote: post #44
icelancer wrote: post #40

Earlier quoted context omitted.

>> That concludes that this bubble will continue as long as interest rate remains near zero. Yeah, I think that is the generally accepted understanding of what's happening right now especially with additional stimulus / QE methods. Think you are already seeing equity escape into other asset classes in commodities and cryptocurrency, too.

and look at gigantic bubble that was created in crypto, because of that asset rotation - do you think crypto (which is funny money) is fairly valued as compared to real companies with real cash flows? the only right strategy is what China have been doing - they have been selling US treasuries and buying real assets left and right across Asia and Africa - securing their grip on rare earth minerals, gold/silver, commod…

>> the only right strategy is what China have been doing - they have been selling US treasuries and buying real assets left and right across Asia and Africa - securing their grip on rare earth minerals, gold/silver, commodities, emerging markets, infrastructure projects and land.

I'd agree with this but selling US Treasuries is more of an economic weapon rather than an investment strategy on their part, IMO. They do need to raise cash to do the other stuff so it has to come from somewhere, but they aren't dumping them on the market, either; they want stable-type assets around and 30-year US Treasuries are tough to beat.

Their Belt and Road Initiative is the right strategy. Politically difficult to explain since it's basically imperialism / mercantilism under a different banner, but when you don't answer to your voters and have central control of the economy and media, who cares?

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

#58

Post by zhoujianfu »

So, if the goal of investing is to get rich and the goal of being rich is to be happy, I have a good strategy.

Your overall net worth is not what makes you happy, it’s the CHANGE in net worth (up).

If you’re always heavily invested in the market, you are most of the time happy, because most of the time, the market goes up. This is punctuated by (relatively) quick periods of great loss/sadness.

But overall, you end up with a lot more happy times than sad. So a net positive to happiness. Not being invested in the market (at all or trying to beat a crash) means you have a period of net zero happiness. Which is worse on average than being in the market.

So, let it ride people... on average you’ll be happier!

(And actually, on average you’ll do better financially too.)

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

#59

Post by lumost »

TuringNYC wrote: post #45
lumost wrote: post #8

Earlier quoted context omitted.

A potentially more productive view is that the fed cannot support the bubble indefinitely. It's becoming clear that money can be printed without causing inflation if its unevenly distributed in the economy. This amounts to large scale wealth redistribution to support asset price increases. If you earn dollars for a living, your purchasing power in terms of future dollar income is being eroded. You will purchase a hom…

>> A potentially more productive view is that the fed cannot support the bubble indefinitely. The interesting thing is whether "cannot" means the point when they literally can not because the market and inflation wont bear it...or when they wise up to the tinder box they have created. The problem with the latter is -- which administration would allow this to be under their watch. Once a problem is bad enough, you mig…

There are many situations where the fed is forced to end its current policies prior to the expected triggers of market stability or increased CPI. Political and social risk is likely underestimated.

That being said, examining the exit paths and forcing functions which would force Fed policy to change is something I'd like to see more of. There is a certain mentality floating around that there are no alternatives to being in the market, and that it's become too politically difficult to end Fed market support. If the latter is true, then there are a lot of consequences - such as returns becoming decoupled from cash flow see TSLA, Unicorns, or Hertz.

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

#60

Post by koolba »

yellowstuff wrote: post #35

> I expect once again for my bubble call to meet my modest definition of success: at some future date, whenever that may be, it will have paid for you to have ducked from midsummer of 2020. Two can play at this game. I predict that at some future date the stock market will be higher than it is today.

> Two can play at this game. I predict that at some future date the stock market will be higher than it is today.

If you said that about the Nikkei 225 in 1990, you’d still be waiting for it to come true. Though as of a few hours ago it’s within 30% of the peak: https://www.bloomberg.com/news/articles/2021-02-15/japan-s-n...

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