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Asset prices are high across the board

economist.com

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Re: Asset prices are high across the board

#61

Post by eighthnate »

pishpash wrote: post #9
tfha wrote: post #6

My projection is that this is resulting from a lot of circular investing. Fund A gives money to company B, who has more money than they can spend so it goes to fund C, and then that goes to company D, etc. We've learned that you are not supposed to have idle capital. And yet we keep so much of our wealth as money, the only way to deploy it is to send it in a circle. Valuations go up, prices and costs don't. Unfortuna…

That end is called raising the interest rate. When the rate hits some magic phase transition number where enough people believe you can invest in safe liquid accounts for more than the return on risky assets then the whole thing collapses. But then it'll get propped up again afterwards and everybody believes that now.

Not sure why you are being downvoted. That's essentially how things work.

That's what FED and interest rates exist to do. Create and pop bubbles.

As the FED raises interest rates, money will start trickling out of "riskier" assets. The quicker the FED raises interest rates, the more quickly money will leave. Then we get a recession and when the FED feels they've sopped up enough money from the economy, then they will lower interest rates to get more money into the system, get more economic activity and re-inflate asset prices.

Re: Asset prices are high across the board

#63

Post by eighthnate »

swandog46 wrote: post #24
qwtel wrote: post #13

"In investing, it is better to sell a year too early, than a day too late".

No it isn't! It's better to buy and hold and ride it out. Otherwise you tend to miss the gains on the other side. Decades of research by now has shown that buy-and-hold beats timing the market every time.

> No it isn't! It's better to buy and hold and ride it out

No. Decades of research has shown that it's better to sell early and get back in late. It has shown that selling late and buying back in early is worse than riding out. It has shown that selling and never buying back in is worse than riding out.

> Decades of research by now has shown that buy-and-hold beats timing the market every time.

No. It has shown that people are bad at timing the market. Nobody can buy at the lows and sell at the highs. That's why you sell early and buy back in late.

For most people, they should just buy dated mutual funds and not even think about the markets.

The simplest thing to do is to start liquidating your stock positions when the fed starts ramping up interest rates ( maybe a few quarters of consistent interest rate hikes ) and then start buying back in slowly when the FED starts lowering interest rates.

That will give you far better returns than buying and holding.

Re: Asset prices are high across the board

#64

Post by jgalt212 »

hellofunk wrote: post #5
Bucephalus355 wrote: post #4

Joe Kennedy supposedly said he avoided the stock crash of 1929 by getting out of the market when his shoeshiner started giving him stock tips. Multiple times recently I’ve been at restaurants recently overhearing people talk about how much money they’re going to make in Bitcoin. It’s hard to convey here, but the make-money-who-cares-how-it’s-magic came across every time in such a wow-this-is-definitely-a-bubble way.…

As far as the stock market goes, sentiment has not yet reached a peak. There are still a lot of what I call the "wise naysayer" on CNBC and elsewhere, claiming that we are due for a big decline, or even a crash. Until there are no naysayers left, the chances of further climbs is supported by sentiment analysis.

I agree stocks are rich/richish by most metrics, but still cheaper than bonds/real estate. And the latter have very strong negative correlation to the level of interest rates.

Plus, private equity is sitting on close to $1T of dry powder. That's a pretty strong back stop to stock prices. In short, to avoid the crash you need to figure out what causes mass PE withdrawal, and get in front of that.

https://www.bloomberg.com/news/articles/2017-09-01/why-priva...

Re: Asset prices are high across the board

#65

Post by [deleted] »

eighthnate wrote: post #63
swandog46 wrote: post #24

Earlier quoted context omitted.

No it isn't! It's better to buy and hold and ride it out. Otherwise you tend to miss the gains on the other side. Decades of research by now has shown that buy-and-hold beats timing the market every time.

> No it isn't! It's better to buy and hold and ride it out No. Decades of research has shown that it's better to sell early and get back in late. It has shown that selling late and buying back in early is worse than riding out. It has shown that selling and never buying back in is worse than riding out. > Decades of research by now has shown that buy-and-hold beats timing the market every time. No. It has shown that…

[deleted]

Re: Asset prices are high across the board

#66

Post by timr »

jgalt212 wrote: post #64
hellofunk wrote: post #5

Earlier quoted context omitted.

As far as the stock market goes, sentiment has not yet reached a peak. There are still a lot of what I call the "wise naysayer" on CNBC and elsewhere, claiming that we are due for a big decline, or even a crash. Until there are no naysayers left, the chances of further climbs is supported by sentiment analysis.

I agree stocks are rich/richish by most metrics, but still cheaper than bonds/real estate. And the latter have very strong negative correlation to the level of interest rates. Plus, private equity is sitting on close to $1T of dry powder. That's a pretty strong back stop to stock prices. In short, to avoid the crash you need to figure out what causes mass PE withdrawal, and get in front of that. https://www.bloomberg…

"I agree stocks are rich/richish by most metrics, but still cheaper than bonds/real estate. And the latter have very strong negative correlation to the level of interest rates."

Bond prices go down. Yields go up.

Re: Asset prices are high across the board

#67

Post by Boothroid »

EliRivers wrote: post #50
Boothroid wrote: post #43

Earlier quoted context omitted.

Interest rates likely to rise soon, so pound will likely strengthen.

Interest rates likely to rise soon I keep hearing that, over and over, for years and years. Eventually it'll be true.

Well I'm just going on what the governor of the Bank of England says, but what do I know eh?

'In the clearest indication yet that there could be a rate rise as early as November, Mark Carney suggested that it was time for the bank to "ease its foot off the accelerator".'

http://www.bbc.co.uk/news/business-41439349

Re: Asset prices are high across the board

#69

Post by csa »

jacobkg wrote: post #21
qwtel wrote: post #13

"In investing, it is better to sell a year too early, than a day too late".

After you sell how do you know when to buy back in again?

I think Buffet said something to the effect of "be fearful when others are greedy, but be greedy when others are fearful".

Having lots of dry powder in a downturn is a very good place to be for a professional investor. That said, most folks are not professional investors, so buy and hold is relatively simple strategy that performs fairly well for non-professionals.

Re: Asset prices are high across the board

#70

Post by hkmurakami »

danmaz74 wrote: post #48
hkmurakami wrote: post #33

Earlier quoted context omitted.

Perhaps easier to conceptualize in Europe indices. Imagine European stocks go up but so does the strength of the euro vs the dollar. You, as a US resident (ok presumably) wouldn't be realizing those stock gains on the top line numbers because when you sell the position and convert back to dollars, the worse FX rate erodes your returns. When OP talks about dollar adjusted returns of S&P, an analogous mechanism is at w…

I think you meant that European stocks go up, but the euro goes down.

oops you are correct!
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