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When buying the dip doesn’t work: An analysis of the dot-com crash

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Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#281

Post by Retric »

lottin wrote: post #238
mach1ne wrote: post #224

Earlier quoted context omitted.

>but it's not expensive _everywhere_. It's expensive in some of the most desirable places. The fact that the median and average house prices have exploded signifies that the housing market is in a bubble. It's not relevant that house prices have not increased equally everywhere. Ultimately, after the bubble eventually bursts, it will leave a lot of people indebted to banks with their real ownings not matching the deb…

Since the mid-2000s house prices have risen less , on average, than disposable income in the US. https://twitter.com/MPelletierCIO/status/1522704947556483073...

Notice you said disposable income rather than income, there is a huge difference.

But I think people recognize the housing bubble that popped in 2008 as a bubble. Saying we haven’t reached the peak of the last bubble doesn’t mean we aren’t in a bubble.

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#282

Post by Gatsky »

ivanche wrote: post #242
hn_throwaway_99 wrote: post #92

Earlier quoted context omitted.

> the past 100 years provide a fairly compelling narrative. In the US. The Nikkei is down over 25% from its peak 32 years ago .

And before the peak it was the greatest asset bubble of all time! "A $100,000 investment in Japanese large cap stocks in 1970 would have turned into $5.7 million by 1989." [0] [0] https://awealthofcommonsense.com/2016/09/the-greatest-bubble...

Key point. Of course it is possible to pay too much for something and never make any money.

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#283

Post by PretzelPirate »

jseban wrote: post #269
chii wrote: post #29

Earlier quoted context omitted.

> dissuaded capital from financing the real economy and instead encouraged herding and levering up in the financial economy for returns. i don't really agree with this - the money used to purchase financial products don't disappear, because for every product bought, there was a seller. This seller now has cash, which would be invested elsewhere. The only concern is low interest rates, which makes the hurdle for any i…

> i don't really agree with this - the money used to purchase financial products don't disappear, because for every product bought, there was a seller. This seller now has cash, which would be invested elsewhere. And buying stocks is financing real projects, and you only get those returns if they manage to do something actually useful, this is helping to finance and promote economic activity, how is that taking money…

If someone buys stocks from a third party in the open market, are they financing real projects? It really feels like it’s all speculation since the value of my shares doesn’t actually entitle me to that portion of the company’s profits, unless I can sell back directly to the company.

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#284

Post by adventured »

mach1ne wrote: post #224
chii wrote: post #148

Earlier quoted context omitted.

> if money is plowed into housing, the homeowner has more cash when they sell. but it's not expensive _everywhere_. It's expensive in some of the most desirable places. And housing has some issues unrelated to the market - such as NIMBYs stopping new constructions.

>but it's not expensive _everywhere_. It's expensive in some of the most desirable places. The fact that the median and average house prices have exploded signifies that the housing market is in a bubble. It's not relevant that house prices have not increased equally everywhere. Ultimately, after the bubble eventually bursts, it will leave a lot of people indebted to banks with their real ownings not matching the deb…

> The fact that the median and average house prices have exploded signifies that the housing market is in a bubble.

It doesn't signify that. The US has long since switched over to a permanently low interest rate environment due to the extreme national debt that the Fed has to manage. Housing is going to stay artificially expensive on a longer-term basis accordingly. Housing only deflates on a sustained basis if interest rates go up a lot on a sustained basis, and that's not going to happen (we're coming up on 14 years into the forever low rates era).

We've been enjoying very high rates of consumer inflation and what has the Fed done? Zilch. Mostly all they've done is jabber, which is most of what they can do now: endlessly talk about how they plan to raise rates. Why? Because they can't do anything of consequence and they know it. It's a humiliating failure of their supposed mandate.

One of the many consequences of forever low rates is forever artificially inflated asset prices.

Real-estate values broadly are not a bubble, it's dollar debasement, which is why gold is going to become normal up toward $2,000 and oil is going to be normal at $65-$75+.

Mediocre economic growth will (presently is) ultimately take care of the elevated rates of inflation, rather than the Fed hiking rates by a lot. Later in the decade the Fed will be back to talking about how they'd like to spark higher rates of inflation, as typical annual real GDP growth sinks below 2%.

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#285

Post by qgin »

PretzelPirate wrote: post #283
jseban wrote: post #269

Earlier quoted context omitted.

> i don't really agree with this - the money used to purchase financial products don't disappear, because for every product bought, there was a seller. This seller now has cash, which would be invested elsewhere. And buying stocks is financing real projects, and you only get those returns if they manage to do something actually useful, this is helping to finance and promote economic activity, how is that taking money…

If someone buys stocks from a third party in the open market, are they financing real projects? It really feels like it’s all speculation since the value of my shares doesn’t actually entitle me to that portion of the company’s profits, unless I can sell back directly to the company.

The value of stocks is pinned to two events that you often don’t directly participate in but are absolutely connected to in a real way.

1. The IPO. While it’s true that only the people who buy at the IPO directly finance the company, if there wasn’t the promise of someone else in the future to sell the shares to, nobody would buy at the IPO. The existence of future second-hand buyers makes the direct funding at the IPO possible.

2. Dividends and buybacks. All stocks get their value from either the current existence or future promise of dividends and buybacks. While from time to time people get lost in “greater fool” trading, the reason a stock doesn’t go to zero is because there is either currently a dividend/buyback or people believe that eventually when the company matures, they will offer a dividend/buyback to shareholders and a future buyer will want to buy this shares for the cash returned by the company. (As a tangent, this is something most crypto investors don’t understand… cryto is almost exclusively “greater fool” trading with no basis in the promise of future real cash return)

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#287

Post by trashtester »

fny wrote: post #10

Look at a chart of the S&P 500 from 1920 to 2008 and you'll notice something rather curious: the stock market has gone parabolic ever since the financial crisis. What made this period so unique? Tremendously low interest rates coupled with quantitative easing dissuaded capital from financing the real economy and instead encouraged herding and levering up in the financial economy for returns. At ever dip, it was an op…

I think you reference only considers the index adjusted for inflation, but without taking the dividends into account.

Optimists tend to consider the dividends too small to matter when buying stocks, but it turns out that over time, the dividends tend to be a large part of the inflation adjusted returns:

According to this article [0], the profit of investing just before the .com bust would be only 12.9% by mid 2017, which is about 0.7%pa, if adjusting for inflation but not dividends.

When taking dividends into account, that grows to 54.5%, or 2.54%, more than 3x more.

And this is more or less the worst case based on recent history.

[0]: https://finance.yahoo.com/news/inflation-adjusted-returns-si...

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#288

Post by VHRanger »

lvl102 wrote: post #278

Random thoughts: (1) People were deeply and extremely risk-averse coming out of the 2008 crisis. And now we are _starting_ to see the other end of that spectrum. However, we are still far from the heights/throes of the dot-com boom. Those were some insane times when nothing even mattered. (2) But keep in mind, the main driver of global economy is still increasing standard of living and middle class. And that’s far fr…

Yes, extremely risk averse when you see behaviors like GME/crypto maniacs, tech stocks at price to earnings of 50-250

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#289

Post by pastaguy1 »

Retric wrote: post #281
lottin wrote: post #238

Earlier quoted context omitted.

Since the mid-2000s house prices have risen less , on average, than disposable income in the US. https://twitter.com/MPelletierCIO/status/1522704947556483073...

Notice you said disposable income rather than income, there is a huge difference. But I think people recognize the housing bubble that popped in 2008 as a bubble. Saying we haven’t reached the peak of the last bubble doesn’t mean we aren’t in a bubble.

There were structural/regulatory reasons that helped the bubble grow last time, are there any indications of this now?

If they are there we probably won't know until it's too late, but this housing bubble feels a little more like an everything bubble

Re: When buying the dip doesn’t work: An analysis of the dot-com crash

#290

Post by ctennis1 »

JKCalhoun wrote: post #71
01100011 wrote: post #43

SNL skit from the dot-com era: https://twitter.com/WallStreetSilv/status/152279877872567500... Does anyone have a solid understanding of how QE affects the economy? From what I've read, QE basically stays locked in the financial system as interbank cash. I think this can affect short term interest rates, and therefore affect lending(and money creation by the big banks), but otherwise that money doesn't really drive i…

Why would $5.4T in stimulus that, as far as I know, came and went a year ago be causing ongoing inflation?

Did it come and "go", though? A lot of that money was earmarked for local and state government programs, and at least from what I'm seeing, a lot of those projects haven't even taken place yet. Our local city hall, for example, is still trying to spend some of the money, which they will be reimbursed for after the projects are complete.
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