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The Buffett Indicator
21–30 of 110 posts
Re: The Buffett Indicator
#22Related to all of this, note, we may see in the not too distant future "deeply negative" interest rates. Currently, it is difficult to go much below zero because you can stash physical bank notes under your mattress and get a better rate of return (0% instead of -1). But in a cryptocurrency future, the mattress is not an option enabling central banks to go deeply negative (e.g., -5%). I just read a fascinating article in the WSJ about this topic: https://www.wsj.com/articles/digital-currencies-pave-way-for...
Re: The Buffett Indicator
#23[deleted]
Re: The Buffett Indicator
#24Is Buffett indicator still relevant today with deep globalization? It does not take account of at least following factors:
* Companies like BABA or SE that contribute little to US GDP.
* Tech giants shift profits to low-tax countries.
* Income from US only makes part of global giants' income.
(I know almost nothing about economy so this is novice question, instead of a statement against the effectiveness of Buffett indicator.)
Re: The Buffett Indicator
#25The problem with these indicators is that, although they may indicate over- or undervaluation, they tell you nothing about when a mean reversion will happen. As Keynes famously said: "The market can stay irrational longer than you can stay solvent." An indicator that does a pretty good job of signaling the "when" of a recession, and by extension the likely "when" of large market corrections, is yield curve inversion.…
Another way to think about this is that historically equity returns are so consistently high that even with an accurate predictor of returns it’s not worth not being exposed to stocks.
Even if you know the next ten years will be in the bottom decile of returns for the S&P 500, you’re still better off than with cash.
Re: The Buffett Indicator
#26Just a reminder that a larger portion of today's market value is made up from Tech stocks. Tech stocks are typically higher valuations and P/E multiples, giving a skewed data point perspective vs. 20 years ago.
Same can be said of market valuation in 99/00. And just like at that time people are looking for adjusted valuation measures and all type of excuses to justify unrealistic growth expectations. Like ALL previous bubbles it will end in tears.
Did the companies of 99/00 have many years of profits anywhere near the companies of today?
Re: The Buffett Indicator
#27Just a reminder that a larger portion of today's market value is made up from Tech stocks. Tech stocks are typically higher valuations and P/E multiples, giving a skewed data point perspective vs. 20 years ago.
> Tech stocks are typically higher valuations
At the end of the day, stocks are worth whatever people pay for them. It is a fact that tech stocks do have higher P/E multiples at this moment in time. The important question for investors is whether those multiples mean that the stocks are overvalued... or whether they deserve it. The market will decide that, and the answer may change drastically just like any other set of stocks.
Re: The Buffett Indicator
#28The problem with these indicators is that, although they may indicate over- or undervaluation, they tell you nothing about when a mean reversion will happen. As Keynes famously said: "The market can stay irrational longer than you can stay solvent." An indicator that does a pretty good job of signaling the "when" of a recession, and by extension the likely "when" of large market corrections, is yield curve inversion.…
Interesting. I'm not a big fan of digital advertising, so I didn't click on your link. I found this, which was much more informative. https://www.investopedia.com/terms/i/invertedyieldcurve.asp
More informative than one you didn't go to?
Re: The Buffett Indicator
#29The problem with these indicators is that, although they may indicate over- or undervaluation, they tell you nothing about when a mean reversion will happen. As Keynes famously said: "The market can stay irrational longer than you can stay solvent." An indicator that does a pretty good job of signaling the "when" of a recession, and by extension the likely "when" of large market corrections, is yield curve inversion.…
An inverted yield curve has accurately predicted 9 out of the last 5 recessions ;) You can even see it on the chart in the linked article, in 2005/06 — that time, it was different.
That's not that bad! Still seems potentially very useful.
Re: The Buffett Indicator
#30The problem with these indicators is that, although they may indicate over- or undervaluation, they tell you nothing about when a mean reversion will happen. As Keynes famously said: "The market can stay irrational longer than you can stay solvent." An indicator that does a pretty good job of signaling the "when" of a recession, and by extension the likely "when" of large market corrections, is yield curve inversion.…
Interesting. I'm not a big fan of digital advertising, so I didn't click on your link. I found this, which was much more informative. https://www.investopedia.com/terms/i/invertedyieldcurve.asp
This page has ads too?