

The Mystery of Lofty Stock Market Elevations - applecore
http://www.nytimes.com/2014/08/17/upshot/the-mystery-of-lofty-elevations.html

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steven2012
There is no mystery. It's the Fed. And frankly, it's disingenuous for Schiller
to pretend that he doesn't know why.

Quantitative easing is working exactly as the Fed had hoped. It's causing bond
prices to be sky high, mortgage interest rates to be as low as they've ever
been, the stock market to be sky high, house prices to be sky high, etc.

Now, what happens when the Fed takes away its QE? No one knows for sure, but
many speculate that all these bubbles will burst, because they are all
artificially generated.

Personally, I am going to be taking all my money out of the stock market some
time next year, and wait for the crash in October 2015. Crashes usually happen
around that time, and then hopefully the economy survives this second
recession. Until then, the sky's the limit in terms of where Wall Street is
going to push the stock market.

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redwood
Dangerous prediction. Could come this October

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iaw
Agreed. My speculation for a while has been by the end of 2015, it could be
tomorrow.

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marktangotango
Yeah it's a mystery, the big banks made off like bandits in 08, and no one
went to jail for any of it. The Feds printing money to keep up with China, and
maybe the EU. Corporations have more cash than they can use, which is why we
see these absurd acquisitions. The valuations are meaningless.

Welcome to the new normal.

~~~
Bfhfhfjf
This.

Money is no longer a means of transmitting value: all people care about now is
making bigger numbers regardless of whether or not value is created. In the
end it's self-defeating and may lead to a breakdown of the economy over the
next 10-20 years.

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memossy
It's no mystery at all.

Funds aren't allowed to invest in anything they want, but typically have
investment mandates.

Somewhere in the region of $3 trillion (my estimate) is in pension
funds/endowments in the US that have a 7-8% nominal return target for their
managers.

Bonds price off the Fed funds rate, with longer dated bonds being based on
predictions of where these rates will go plus an inflation component.

If the 10 year US bond is giving you 2.4% yield to maturity and you are, say,
head of CalPERS who runs $268bn and needs to hit 7.75% nominal return, what
will you invest in to keep your job?

It isn't all one way though, at the start of this year I predicted bond
strength followed by equity weakness before we move much higher on stocks:
[http://www.businessinsider.com/the-contrarian-
bearish-2014-f...](http://www.businessinsider.com/the-contrarian-
bearish-2014-forecast-2014-1)

You just need to think through how you would act if you're one of these huge
funds, your moves are constrained.

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powera
No mention of demographics, the inflation rate, the T-bill risk-free rate of
return, or of the GDP growth rate (I'm not saying any or all of these ARE
correlated, they're just things I think it would be obvious to analyze before
just declaring it a mystery)?

Well, I guess he does mention some of them are correlated with the stock
prices, but then ends with "nobody knows anything".

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toasted
Perhaps rising wealth inequality leads to a larger proportion of money being
stashed away in investments trying to make more money for the wealthy, and
ultimately results in pathetic investment yields which create a self-balancing
situation where people who actually work for their money are actually better
off..

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themartorana
It seems like you just made an argument where expanding income inequality is
in the end better for those in the "have not" column, because the investments
of the rich aren't doing amazingly well, so there take that.

When the rich are getting measurably richer, measurably faster, that theory
kind of falls on its ass.

Unless I misunderstand you?

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ScottBurson
I think it applies more to the middle class than the rich. The very rich still
have easy access to lucrative investments, but the upper middle class (and
perhaps the slightly to moderately rich) don't. The result is a shift in
incentives away from stock trading and toward entrepreneurship.

I think this is very healthy.

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JanezStupar
While reading the article I was thinking what changed so drastically in the
last hundred years.

Is it possible that pension funds, social welfare funds and insurance
companies are behind it all?

They have loads of money and they kept getting it throughout the recession.
They do not like or are not allowed to invest into risky ventures. Therefore
they just keep propping up what is deemed "safe".

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dnautics
I'd say this is the standard 'financial markets exhibit levy-distributed
changes' issue. The random walk will have more deviations in the long tail, so
if you expect a normally-distributed martingale, you will be surprised when
the market 'goes too high'.

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ISL
Along with the points already mentioned -- a lot of baby-boomers have been
saving for retirement for a long time. Stocks/mutual funds are a major way
that people save/invest.

