The Hazards of Asset Allocation in a Late-Stage Major Bubble
1–10 of 95 posts
Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble
#2pragmatic and I enjoy pretending to be a perma-bear as much as the next guy, but if the macro environment leads to more currency being created or distributed than prior times, then nothing is overvalued yet relative to how much money has to be placed into them when it is seeking yield, so that means here I will have to disagree:
"But this bubble will burst in due time, no matter how hard the Fed tries to support it"
this either needs to be weighted much lower, can't be the crux of the article, or has to be called out for its ambiguity and uselessness in predictive ability
Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble
#3pragmatic and I enjoy pretending to be a perma-bear as much as the next guy, but if the macro environment leads to more currency being created or distributed than prior times, then nothing is overvalued yet relative to how much money has to be placed into them when it is seeking yield, so that means here I will have to disagree: "But this bubble will burst in due time, no matter how hard the Fed tries to support it"…
Yes, the bubble readers seem to ignore the money creation.
However that said, the default bubble is potentially a lurking time bomb, so it's a race between inflation and loan defaults, essentially. (Inflation tends to make loan defaults less likely as it reduces the relative cost of existing loans.)
Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble
#4This 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 at the gyms I'm going to. Is this the equivalent signal? The 2021 equivalent might be "When your personal trainer is giving you investment advice, that's how you know to get out?"
Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble
#5Looking 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.
Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble
#6Past discussion: https://news.ycombinator.com/item?id=25713696
Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble
#7Looking 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
Why do you believe this is a predictive measure?
Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble
#8pragmatic and I enjoy pretending to be a perma-bear as much as the next guy, but if the macro environment leads to more currency being created or distributed than prior times, then nothing is overvalued yet relative to how much money has to be placed into them when it is seeking yield, so that means here I will have to disagree: "But this bubble will burst in due time, no matter how hard the Fed tries to support it"…
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 home later or never, you may not be able to afford an education, and your medical expenses will rise ( as will anything that affects future earning power ).
When this ends is anyones guess, it's entirely plausible that we revert to the social systems of prior less equal times, foreign trade moves off the dollar, assets converge to an effective price of infinite dollars, or populists demand their own redistributive policies such as UBI or wealth taxes.
Or the fed meets tomorrow and cuts QE entirely. What is assured is that the current trend is unsustainable and must end eventually.
Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble
#9I agree with the basic take that stock prices are ludicrous, but what's different this time(tm) is that there don't seem to be any alternatives. Bonds are overpriced, real estate is not cheap, and Biden's $1.6T printer go brr money faucet ensures that there's going to be even more money sloshing around for the foreseeable future. Also, whereas the dotcom bubble darlings were all massively unprofitable, this time around the FAANGs are all minting money and even Tesla is eking out steady profits (if not exactly the $1M per car implied by their P/E!).
Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble
#10Jeremy Grantham co-founded the investment firm GMO. They're famous for 7 year forecasts by asset classes. Here's the bearish December 2020 forecast: https://www.gmo.com/americas/research-library/gmo-7-year-ass...
He's been overly bearish for quite some time, here's the 7 year forecast from December 2009: https://ritholtz.com/2010/01/7-year-asset-class-forecasts/
Here's a recent talk he gave: https://www.youtube.com/watch?v=RYfmRTyl56w&ab_channel=Bloom...