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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

#81

Post by freeone3000 »

viburnum wrote: post #80
freeone3000 wrote: post #71

Earlier quoted context omitted.

The federal reserve sets this rate directly. They chose it to be at 5.25% (correcting my error in the above) because the economy was going well, we had less than 5% unemployment, and a high rate was generally considered necessary to fight inflation. https://www.federalreserve.gov/newsevents/pressreleases/mone... is their statement.

That's really cool you looked up the press release! Yeah, that's right, the central bank sets the rate. But the government could have managed inflation by other means, by regulation, raising taxes (perhaps on those who could most easily pay them), cutting spending, or adjusting trade policy, rather than giving investors 5%/year for doing no work.

You seem to have the purpose of rate increases reversed. Low interest rates actually help investors more. You're able to trade on margin for cheaper, which is the real driver of large investment firms. The rate is raised when you want money to leave the system.

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

#82

Post by akvadrako »

DoubleDerper wrote: post #48

Serious question: why would the bubble /need/ to "burst"?

I don't think it needs to burst. Though there will certainly be times when it goes down there is no reason it'll even go below current prices.

Historically prices have always gone up, so as long as you aren't near a peak it's probably the lowest the total market will ever be.

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

#83

Post by LittlePeter »

koolba wrote: post #34
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.

Wtf is a pancake swap?

Or another one: sushi swap.

Perhaps this should be a measure of a bubble too: when you ran out of names and you start using food to name financial contracts.

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

#84

Post by rich_sasha »

Very interesting article, and has some very poignant observations.

That said, it's not that hard to say we are in a bubble. Frankly, almost any time the market isn't at the bottom, it's in a bubble.

The real questions are, when will it pop, and how do you invest accordingly. These are super-hard, and a (cursory) read of the article doesn't really address that.

The general, boring observation, is that unless you can do much, much better, you should just be long the market, throughout all the bubbles and busts. You won't get the 50%-in-a-month payout, but you can get your consistent 10% a year or whatnot.

So I'm not just nay-saying, I thought S&P is about to crash ever since it crossed 2,000 after the crisis. If I followed my (weak) gut feeling, I would have lost 50% on that trade. Thank goodness I didn't. Even when it crashes, eventually, probably (???) not as low as 2,000.

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

#85

Post by ur-whale »

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…

>30-year US Treasuries are tough to beat.

Only because most of the world hasn't caught up yet to what a dollar real's worth is.

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

#86

Post by ur-whale »

zhoujianfu wrote: post #58

So, if the goal of investing is to get rich and the goal of being rich is to be happy, I have a good strategy. Your overall net worth is not what makes you happy, it’s the CHANGE in net worth (up). If you’re always heavily invested in the market, you are most of the time happy, because most of the time, the market goes up. This is punctuated by (relatively) quick periods of great loss/sadness. But overall, you end up…

> Your overall net worth is not what makes you happy, it’s the CHANGE in net worth (up).

Two unfunded assumptions that seem to be based on your own experience.

Here's another, based on my own experience: a component of what makes you happy is to not have to worry about money at all, either because you live a lifestyle that require little of it, or because you have enough that a 50% change in wealth has zero impact on your life.

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

#87

Post by ur-whale »

Clewza313 wrote: post #16
MrPowers wrote: post #13

Earlier quoted context omitted.

Emerging markets and value stocks are historically cheap on a relative basis, see the What to Do? section at the end of the article.

If the US stock market collapses, they'll go down too. They might go down less, but if the bubble is going to burst, you'd still be better off keeping your money out until then and only buying once they're cheap. Of course, this requires being able to time the markets twice, which is... non-trivial.

>Of course, this requires being able to time the markets twice, which is... non-trivial.

What's Buffet doing right now ?

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

#88

Post by cs702 »

joncrane wrote: post #4

This 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…

The quote at the beginning of the article is right:

> The one reality that you can never change is that a higher-priced asset will produce a lower return than a lower-priced asset. You can't have your cake and eat it. You can enjoy it now, or you can enjoy it steadily in the distant future, but not both – and the price we pay for having this market go higher and higher is a lower 10-year return from the peak.

With a bit more mathematical rigor: For each of us there will be only one future. In that future, each asset -- company, property, etc. -- will earn a finite cash flow yield. If we pay more for that future cash flow now, our rate of return will be lower in the future.

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

#89

Post by viburnum »

freeone3000 wrote: post #81
viburnum wrote: post #80

Earlier quoted context omitted.

That's really cool you looked up the press release! Yeah, that's right, the central bank sets the rate. But the government could have managed inflation by other means, by regulation, raising taxes (perhaps on those who could most easily pay them), cutting spending, or adjusting trade policy, rather than giving investors 5%/year for doing no work.

You seem to have the purpose of rate increases reversed. Low interest rates actually help investors more. You're able to trade on margin for cheaper, which is the real driver of large investment firms. The rate is raised when you want money to leave the system.

Financial institutions (such as hedge funds) borrow money for leverage but the rentier class as a whole are creditors. Raising rates pulls money out of the system but it also gives money to rentiers.

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

#90

Post by sfblah »

throw0101a wrote: post #41
sfblah wrote: post #24

Earlier quoted context omitted.

This line of reasoning assumes the future looks like the past. Which is generally a solid mode of thinking. But, if the future looks like the past, shouldn't it give you pause that on many metrics markets are substantially more richly valued than at any peak in the last 100 years? You can't have it both ways. Either the past is useful or it's not. If it's useful, then you have two conflicting data points -- market ti…

> If it's useful, then you have two conflicting data points -- market timing doesn't work, and we're at the top of a big bubble. Market timing does not work over the long-term, and even if we are at the top of the bubble, you can't know we're at the top, but more importantly: it doesn't matter. * https://awealthofcommonsense.com/2014/02/worlds-worst-market... > If it does, then yes you should expect to recoup the mon…

Cool. Now do the Japan bubble in the late 1980s.
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