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The Buffett Indicator

currentmarketvaluation.com

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Re: The Buffett Indicator

#61

Post by californical »

jbay808 wrote: post #59
julienchastang wrote: post #22

Related 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 articl…

You can actually create negative interest paper bank notes without needing cryptocurrency. One example is stamp scrip, where one must pay a recurring fee to maintain the note's validity: https://en.m.wikipedia.org/wiki/Scrip#Stamp_scrip

Isn’t that what we have inflation for though, essentially? It’s basically just an annual ~2% tax on cash (with some volatility)

Re: The Buffett Indicator

#62

Post by nly »

sfblah wrote: post #16
dforrestwilson wrote: post #11

Valuations have been stretched for almost half a decade now according to old market metrics. All of these valuation metrics were originally derived when actively managed mutual funds ruled the roost. Passive ETFs are imposing an entirely different trading/investing ruleset on the system. This should not be underestimated.

No matter what mechanism is used, investing comes down to putting money into a instrument to get a reasonable level of return given the risk taken. Passive investment strategies don't change this fundamental equation; they just hide the mechanics from the investor. The $64 questions in today's economy are: 1. Will multiple expansion continue indefinitely, thereby enabling investors to achieve higher profits than one…

#2 depends on time horizon. Getting 3% above inflation is better than losing ~2% per year to inflation. With the former, over 30 years, you're doubling your purchasing power.

Over 30 years you'd be very surprised and unlucky not to make a positive return with a globally diversified stock portfolio

Re: The Buffett Indicator

#65

Post by pfortuny »

As long as interest rates are essentially Breaking the concept of money as value in time (and that is what the ineterest rate means, because value now is better than value later) has broken all the basics of economics and finance. And is totally distorting.

It is a huge shame which central bankers somehow will have to pay for.

Edit: just to explain. "Value now" is better than "value later" or otherwise actions are generally worthless, which is a somewhat negative philosophical foundation for "Economy" which comes from "household management"...

Re: The Buffett Indicator

#66

Post by greesil »

SantalBlush wrote: post #36
hhmc wrote: post #10

Earlier quoted context omitted.

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.

This "9 out of the last 5" quote is the deadest of beaten horses on HN. It shows up at least once a week here, and it is written with such smugness and unoriginality that it makes even dad jokes funny by comparison. Let's cut to the chase and make a bot that posts "9 out of the last 5 recessions, hyuk!" on every post remotely related to finance and be done with it. It is the furthest thing from a substantive comment;…

My interpretation is that it's not a joke, but instead a way to convey the heuristic can have false positives.

Re: The Buffett Indicator

#67

Post by greesil »

I thought for sure we were headed for a recession prior to covid based on this. The great thing about being a permabear is that eventually you are right. In the meantime you're a terrible investor who can't afford to buy a house. And then when your predictions are fulfilled, the prize for winning is everything going to crap in the world

Re: The Buffett Indicator

#68

Post by paulmd »

JackPoach wrote: post #58
aazaa wrote: post #8

The 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.…

It's not an indicator problem, it's a problem of people trying to time markets. Also, there are two ways to use the Buffet Indicator - right and wrong. The wrong way is to say 'it's overvalued, I should do something - short the market'. The right way is 'it's overvalues, I should avoid doing something - buying overvalued stocks'. Buffett has been sitting on piles of cash in the past for years and years, avoiding buyi…

> sitting on piles of cash in the past for years and years, avoiding buying securities when they are overvalued. He never tried timing the market, simply waiting for the right moment.

It’s not quite clear what you’re trying to say here, because if you popped into a newbie investment forum and said you were sitting on a pile of cash that you were avoiding investing because the market was overvalued, you’d be told that is the literal classic “trying to time the market” move.

Buffett obviously is a sophisticated investor who knows what he’s doing but if your description is right this is absolutely still him timing the market. Timing the market isn’t just when you try to pick the day that’s lowest, it’s still timing the market if you are picking the month or year that is lowest.

Re: The Buffett Indicator

#69

Post by carnitine »

dhsysusbsjsi wrote: post #15

Now divide by M1 money supply. Is it the stock market over valued or the dollar devaluing as they print trillions of them.

The central bank performing a duration swap on money already in the economy does not involve printing anything. They’d like you to think it does though as fear of inflation stokes the behaviour they want.

Re: The Buffett Indicator

#70

Post by roenxi »

paulmd wrote: post #68
JackPoach wrote: post #58

Earlier quoted context omitted.

It's not an indicator problem, it's a problem of people trying to time markets. Also, there are two ways to use the Buffet Indicator - right and wrong. The wrong way is to say 'it's overvalued, I should do something - short the market'. The right way is 'it's overvalues, I should avoid doing something - buying overvalued stocks'. Buffett has been sitting on piles of cash in the past for years and years, avoiding buyi…

> sitting on piles of cash in the past for years and years, avoiding buying securities when they are overvalued. He never tried timing the market, simply waiting for the right moment. It’s not quite clear what you’re trying to say here, because if you popped into a newbie investment forum and said you were sitting on a pile of cash that you were avoiding investing because the market was overvalued, you’d be told that…

The denizens of the investor forum would be wrong; it isn't trying to time the market. This strategy is simply valuing the stocks.

The problem with the plan is that holding piles of cash is a game for losers; you need the money to be in some sort of asset - it matters not what - to avoid the printers of the central banks. There is a real chance that stock prices never come down as much as everything else goes up.

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