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The Hazards of Asset Allocation in a Late-Stage Major Bubble

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Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble

#61

Post by slt2021 »

icelancer wrote: post #57
slt2021 wrote: post #44

Earlier quoted context omitted.

and look at gigantic bubble that was created in crypto, because of that asset rotation - do you think crypto (which is funny money) is fairly valued as compared to real companies with real cash flows? the only right strategy is what China have been doing - they have been selling US treasuries and buying real assets left and right across Asia and Africa - securing their grip on rare earth minerals, gold/silver, commod…

>> the only right strategy is what China have been doing - they have been selling US treasuries and buying real assets left and right across Asia and Africa - securing their grip on rare earth minerals, gold/silver, commodities, emerging markets, infrastructure projects and land. I'd agree with this but selling US Treasuries is more of an economic weapon rather than an investment strategy on their part, IMO. They do…

China sees what FED is doing with USD and understands that dollar slowly becomes "funny money" so they execute hedge:

1. become worls biggest bitcoin miner - funny money alternative to USD

2. if USD is overvalued then you should buy up undervalued assets in EM and gain mercantile and political benefits

3. their expanded empire will continue to print USD and they will continue to expand everywhere except USA to hedge against USD

Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble

#62

Post by xnx »

koolba wrote: post #60
yellowstuff wrote: post #35

> I expect once again for my bubble call to meet my modest definition of success: at some future date, whenever that may be, it will have paid for you to have ducked from midsummer of 2020. Two can play at this game. I predict that at some future date the stock market will be higher than it is today.

> Two can play at this game. I predict that at some future date the stock market will be higher than it is today. If you said that about the Nikkei 225 in 1990, you’d still be waiting for it to come true. Though as of a few hours ago it’s within 30% of the peak: https://www.bloomberg.com/news/articles/2021-02-15/japan-s-n...

Given the Nikkei, I've never understood the fundamental law that everyone believes about the US stock market going up long term. I'm genuinely looking for a convincing answer so I could feel comfortable investing.

Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble

#63

Post by throw0101a »

nmfisher wrote: post #49
throw0101a wrote: post #14

Just keep buying. A post by Nick Maggiulli in 2017: > Many investors focus on the right time to buy stocks because they don’t want to buy near a peak in case of a future market crash. I understand the feeling. With the market near all time highs in early 2017, it can be tempting to hold off until there is a larger negative adjustment in prices. > The only problem with this approach is the market could go up for a sig…

On the other hand, if you bought into the Nikkei in the late 80s/early 90s, you'd still be in negative returns 30 years later .

First, talk to me when the CAPE of any market has a CAPE of 100 like the Nikkei had:

> What if an investor decided to detach from the herd once the CAPE ratio hit 50? At that point, the Nikkei had already delivered 263% over the previous ten years, or 13.8% a year. Not too bad. But once the CAPE ratio broke 50 in 1986, it wouldn’t peak for another 45 months, and it would add another 145%. Could the person who sold at CAPE 50 really sit on their hands for another 4 years as the mania sucked everyone else in?

* https://theirrelevantinvestor.com/2017/08/10/stock-bubble/

Second, the CAPE is fairly good at predicting future returns. Current S&P 500 CAPE:

* https://www.multpl.com/shiller-pe

So at 35.83, as I type this, the expected returns are 2.79%. If you can find an investment that earns at least that (or more), then you should be putting your money there. Can you list an investment that has that expected return? Indian, Bahrainian, or Mexican bonds perhaps?

* https://www.investing.com/rates-bonds/bahrain-government-bon...

* https://www.investing.com/rates-bonds/india-government-bonds

* https://www.investing.com/rates-bonds/mexico-government-bond...

The actual lessons to learn from Japan, one of which is diversification:

> Diversification, as always, is the key to avoiding a blow-up. The entire point of diversification is to avoid having your entire portfolio in a Japan situation. The global stock market has done just fine since 1990 even when you include Japan in the results.

* https://ritholtz.com/2017/10/japan-greatest-bubble-time/

There are plenty of "markets" out there:

* https://www.bogleheads.org/wiki/Callan_periodic_table_of_inv...

Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble

#64

Post by nine_k »

xnx wrote: post #62
koolba wrote: post #60

Earlier quoted context omitted.

> Two can play at this game. I predict that at some future date the stock market will be higher than it is today. If you said that about the Nikkei 225 in 1990, you’d still be waiting for it to come true. Though as of a few hours ago it’s within 30% of the peak: https://www.bloomberg.com/news/articles/2021-02-15/japan-s-n...

Given the Nikkei, I've never understood the fundamental law that everyone believes about the US stock market going up long term. I'm genuinely looking for a convincing answer so I could feel comfortable investing.

USD being the world reserve currency, so printing it with abandon for last few years does not remove the demand?

Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble

#65

Post by viburnum »

freeone3000 wrote: post #39
viburnum wrote: post #30

Earlier quoted context omitted.

Why were bond interest rates ever that high in the first place?

The overnight lending rate in 2007 was 5.5%. If that was the cheapest possible you could ever borrow money for even the shortest term, 6% for a long-term bond is downright cheap.

Right, why was that the overnight lending rate?

Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble

#66

Post by gammarator »

nine_k wrote: post #64
xnx wrote: post #62

Earlier quoted context omitted.

Given the Nikkei, I've never understood the fundamental law that everyone believes about the US stock market going up long term. I'm genuinely looking for a convincing answer so I could feel comfortable investing.

USD being the world reserve currency, so printing it with abandon for last few years does not remove the demand?

That’s true until it isn’t, right? The pound sterling once held a similar role...

Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble

#67

Post by AngrySkillzz »

PragmaticPulp wrote: post #51
Negitivefrags wrote: post #23

Earlier quoted context omitted.

The 2021 signal is all the high school students telling you what altcoins to buy. And just wait till you see what is going on with Decentralised Finance. https://coinmarketcap.com/yield-farming/ Sort that by Highest APYs. It fluctuates all the time but the numbers are getting as high as 1,000,000% APY. There is no world in which that can be anything but a Ponzi scheme. People are actually buying into these things.

The strange thing about Ponzi schemes is that they can be very popular, even if participants know they're join a Ponzi scheme. The MMM Global ponzi scheme has been operating in the open for about a decade: https://en.wikipedia.org/wiki/MMM_Global Ponzi schemes benefit greatly from a public perception that "all markets are rigged". Ponzi schemes can feel like a rigged game where they have a chance to get in on the gro…

Yeah, the unfortunate consequence of the widespread misunderstanding and demonization of finance is that everyone thinks its all "made up" or "rigged," and then when they see something that REALLY IS rigged they think it's normal.

Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble

#68

Post by AngrySkillzz »

viburnum wrote: post #29

Where else are rich people going to park their money? The demand for investable assets has gone way up because rich people have gotten much richer, and rich people around the world (such as newly minted emerging market billionaires) often prefer American assets for liquidity and good legal protections. I'm sure these investors would prefer that stocks earn more than 2.5% but that's just the going rate now. What alter…

Exactly. Asset prices are not determined by central bank actions, there is a third component that pushes both asset prices and central bank policy - the global supply/demand of savings vs investment opportunities. Which is driven mostly by demographics. China's massive working class, and the unprecedented rate at which they are getting wealthier, and their savings rate which is like >10x the average US citizen means there is a huge increase in the global supply of savings. Which bids up asset prices and pushes down yields, as savers compete with each other to buy up the extant profitable and safe opportunities. Central banks are the on the receiving end of this too: over-saving pushes down the natural rate of interest, which means policy rates must be lower to respond (unless you want to condemn some working Americans to unemployment).

Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble

#69

Post by webmaven »

papabrown wrote: post #18
neffy wrote: post #3

Earlier quoted context omitted.

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.)

>the default bubble is potentially a lurking time bomb Many things are potential lurking time bombs. I can't think of a single period during any bullish market where you could not point to something and claim that that could be a potential end to the bull run. The problem is when you are in the business of making predictions, if you just scream "Bear" long enough, eventually you'll be right and then you can write a b…

> The problem is when you are in the business of making predictions, if you just scream "Bear" long enough, eventually you'll be right and then you can write a book subtitled, "By the man who called the 2021 (or 2022 or 2023 or 2024 ...) stock crash" and people think you're some sort of genius.

I think the point the article is making is that successful Bears, even though they can't call the peak accurately, are able to say "I am reasonably certain that if I exit the market now and wait for the bubble to go higher and then burst, the correction will drive prices below the current high, and I will have made money overall, even though I'll miss out on the tail end of the bubble rising."

If you call the bubble too early (and if you are always screaming "Bear", you are by definition always too early) , the prices after the crash will still be higher than when you exited, you're completely screwed, and so is anyone who listened to you.

It isn't particularly difficult to say that the next crash, even if it happens a year or two from now, will probably drive the market below the current level. You would experience major FOMO by exiting now and watching the market continue to climb, but you won't actually lose money. If it happens sooner than a year from now, it will certainly dip significantly below current valuations, and you'll be ahead by quite a bit.

In this particular game of Chicken, opinions will differ as to whether it is time to lock in your gains yet, but it shouldn't be too controversial that it is definitely time to start thinking about it.

If I were currently in the market, I would keep an eye out for large and quirky M&A activity along the lines of AOL+Time-Warner. Eg. Tesla decides to buy a consumer appliance, rideshare, or financial services company. Or all of the above).

Re: The Hazards of Asset Allocation in a Late-Stage Major Bubble

#70

Post by webmaven »

yarky wrote: post #19
bluedevil2k wrote: post #12

Earlier quoted context omitted.

Gold is not a suitable comparison to stocks - it gets brought up on here all the time. Gold is not uncorrelated to the market. Gold is not a store of value. Gold is a speculative investment with a great marketing team.

Everything is correlated when shit hits the fan. Gold has stored value since forever. These days every investment is highly speculative.

> Everything is correlated when shit hits the fan. Gold has stored value since forever. These days every investment is highly speculative.

I wouldn't want to be holding a lot of precious metals if/when asteroid mining gets going.

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