Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

gmo.com

Post reply on HN
Print view View original

71–80 of 95 posts

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

#71

Post by freeone3000 »

viburnum wrote: post #65
freeone3000 wrote: post #39

Earlier quoted context omitted.

The overnight lending rate in 2007 was 5.5%. If that was the cheapest possible you could ever borrow money for even the shortest term, 6% for a long-term bond is downright cheap.

Right, why was that the overnight lending rate?

The federal reserve sets this rate directly. They chose it to be at 5.25% (correcting my error in the above) because the economy was going well, we had less than 5% unemployment, and a high rate was generally considered necessary to fight inflation. https://www.federalreserve.gov/newsevents/pressreleases/mone... is their statement.

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

#72

Post by papabrown »

gverrilla wrote: post #42
papabrown wrote: post #26

Earlier quoted context omitted.

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…

> Only about 1.3% of the planet has ever owned Bitcoin. Source?

https://www.buybitcoinworldwide.com/how-many-bitcoin-users/

>With one study suggesting ~25 million cryptocurrency traders outside the USA & Europe, it seems quite likely there are over 100 million owners of bitcoins.

>If true, it means about 1.3% of the world's population owns bitcoin.

I've seen a few other sources make a similar estimate using different methodologies.

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

#73

Post by nine_k »

gammarator wrote: post #66
nine_k wrote: post #64

Earlier quoted context omitted.

USD being the world reserve currency, so printing it with abandon for last few years does not remove the demand?

That’s true until it isn’t, right? The pound sterling once held a similar role...

I don't see something the scale of WWII brewing. Yet.

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

#74

Post by YZF »

DoubleDerper wrote: post #48

Serious question: why would the bubble /need/ to "burst"?

It always does? It's partly a psychological phenomena and partly just a question of running out of greater fools. The first one is that once there's a change in mood for some reason (some event happens, e.g. a recession which in some ways is its own psychological phenomena) everyone convinces themselves that equities are too expensive, the prices start declining and that feeds a further decline. Just look at the GME stock as a microcosm of that situation.

In terms of the greater fool thing, you can only keep buying and selling the same thing for a 10% profit every year without eventually running out of people who will buy it. I guess see also the GME stock as a microcosm of that?

And so, all bubbles must burst.

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

#75

Post by YZF »

exabrial wrote: post #36

I'm sorta skeptical. With 12% of the usa vaccinated and things on the verge of opening, I really don't see things going into a recession unless the powers at be do something stupid. I think this is fundamentally different than other bubbles because there's a guaranteed light at the end of the tunnel.

This bubble started well before Covid. I do agree that if the vaccination campaign is successful the mood will be such that it might sustain it a little longer. That should factor into the calculation. Though on the other hand, governments may hold back a little on stimulus once that happens as they've been throwing money all over the place during Covid.

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

#76

Post by papabrown »

imnotlost wrote: post #28

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 generat…

I'm not sure if they're still around, but I remember back in the 1990s there was a family of mutual funds that aimed to do exactly what you're describing. They actually advertised the fact that they won't have the best returns in bull markets because they were protecting people in down markets.

The idea was that people benefitted more from staying in the market over a long period of time rather than maximizing their returns in any particular year.

So the fund was aimed to smooth out the peaks and valleys along the ride so investors would be more inclined to leave their money parked in the fund rather than getting a statement that said that they're down 30% and going to cash and missing the next run up.

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

#77

Post by YZF »

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…

The probability of the bubble bursting now though is higher than in 2017 (can't argue with that?) ... Rebalancing is a form of market timing, why not be 100% in equities and never rebalance? There is some evidence to suggest that's a good idea.

The way I approach this is that I take these sorts of macro bets with some portion of my portfolio. In a sense I adjust or rebalance my portfolio to partly reflect what I believe are better investments at that time, but not radically so. That way I get to have the fun of maybe timing the market and making an extra buck while also mostly being continuously invested. Being diversified also helps.

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

#78

Post by bzbee10 »

webmaven wrote: post #69
papabrown wrote: post #18

Earlier quoted context omitted.

>the default bubble is potentially a lurking time bomb Many things are potential lurking time bombs. I can't think of a single period during any bullish market where you could not point to something and claim that that could be a potential end to the bull run. The problem is when you are in the business of making predictions, if you just scream "Bear" long enough, eventually you'll be right and then you can write a b…

> The problem is when you are in the business of making predictions, if you just scream "Bear" long enough, eventually you'll be right and then you can write a book subtitled, "By the man who called the 2021 (or 2022 or 2023 or 2024 ...) stock crash" and people think you're some sort of genius. I think the point the article is making is that successful Bears, even though they can't call the peak accurately, are able…

How about Tesla buying $1.5B bitcoin?

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

#79

Post by webmaven »

bzbee10 wrote: post #78
webmaven wrote: post #69

Earlier quoted context omitted.

> The problem is when you are in the business of making predictions, if you just scream "Bear" long enough, eventually you'll be right and then you can write a book subtitled, "By the man who called the 2021 (or 2022 or 2023 or 2024 ...) stock crash" and people think you're some sort of genius. I think the point the article is making is that successful Bears, even though they can't call the peak accurately, are able…

How about Tesla buying $1.5B bitcoin?

I don't see that as fundamentally different than any other large Forex transaction. A bit unusual for a manufacturing company, but hardly unprecedented, and for all we know this is just a signal that Musk is betting he can call the Bitcoin bubble, rather than an actual hedge against USD.

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

#80

Post by viburnum »

freeone3000 wrote: post #71
viburnum wrote: post #65

Earlier quoted context omitted.

Right, why was that the overnight lending rate?

The federal reserve sets this rate directly. They chose it to be at 5.25% (correcting my error in the above) because the economy was going well, we had less than 5% unemployment, and a high rate was generally considered necessary to fight inflation. https://www.federalreserve.gov/newsevents/pressreleases/mone... is their statement.

That's really cool you looked up the press release! Yeah, that's right, the central bank sets the rate. But the government could have managed inflation by other means, by regulation, raising taxes (perhaps on those who could most easily pay them), cutting spending, or adjusting trade policy, rather than giving investors 5%/year for doing no work.
Post reply on HN