
Asset prices are high across the board - jkuria
https://www.economist.com/news/leaders/21730019-ultra-loose-monetary-policy-coming-end-it-best-tread-carefully-asset-prices-are
======
Bucephalus355
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.

But as they say, markets can remain irrational longer than you cane remain
solvent.

~~~
hellofunk
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.

~~~
jgalt212
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...](https://www.bloomberg.com/news/articles/2017-09-01/why-private-
equity-has-963-billion-in-dry-powder-quicktake-q-a)

~~~
timr
_" 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.

~~~
jgalt212
Yield spreads are at extremely rich levels. happy now?

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zaroth
Interesting to note that _dollar adjusted_ the market has actually been going
down for months.

[http://ei.marketwatch.com/Multimedia/2017/10/04/Photos/NS/MW...](http://ei.marketwatch.com/Multimedia/2017/10/04/Photos/NS/MW-
FV586_image0_20171004091402_NS.jpg?uuid=e3e92926-a905-11e7-98d3-9c8e992d421e)

~~~
saimiam
Can you explain this a little more? I don't quite know what dollar adjusted
means.

~~~
lurcio
The real value is the nominal value adjusted for the rate of inflation (using
an agreed definition of inflation and against some agreed monetary base - see
M0, M1... and other types of monies)

Inflation means the purchasing power of the unit of currency is reduced. iirc
it was Keynes who noted that government financing can utilise the margin
between real and nominal values, with the benefit of also maintaining animal
spirits (bullishness/confidence) as the public sees only price. For economist
perspectives: Paul Krugman's blog elaborates on this in a readable way.
Mises.org provides one critique. David Harvey another. Dan Amerman provides an
CFA/investor perspective
([http://danielamerman.com/va/Dow36.html](http://danielamerman.com/va/Dow36.html))

The graph linked to above could be viewed as a decline in real value of
equities - or the value preserving market response to inflationary pressures
(with some degree of non-market support)

The combination of inflation and tax rates is important to understanding the
interplay between government, markets and the wider economy. Which is the dog
and which the tail is a moot point. Not endorsing, and not by any means the
last word, but David Graeber provides an alternative starting point before
exploring further:
[https://www.theguardian.com/commentisfree/video/2015/oct/28/...](https://www.theguardian.com/commentisfree/video/2015/oct/28/david-
graeber-what-government-doesnt-want-you-to-know-about-debt-video)

~~~
danmaz74
I also read the Amerman article now. His analysis completely forgets one very
important thing: stock dividends, which are also higher during periods of high
inflation, and compound if you reinvest them. I didn't run the math, but that
would for sure change the results a lot.

[http://www.multpl.com/s-p-500-dividend-
yield/table](http://www.multpl.com/s-p-500-dividend-yield/table)

~~~
lurcio
Agree on the oversight. From his CFA perspective (which I'm not in any way),
divs are somewhat diminished in the new normal (as your link shows), and
minority of companies account for the majority of divs. Of course, fiscal
policy also impacts div gains. Double whammy. Creates a great climate for the
development of productive assets, rather than resting on protective assets.

~~~
danmaz74
But the "new normal" includes very low price inflation, while his analysis is
based on a period of high inflation and high dividends. With that overlook,
his predictions look very shaky to me.

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tfha
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.

Unfortunately it's a house of cards. When someone finally cashes out, they'll
pull money from the whole system to the tune of the amount it's been amplified
by circular investing.

There will be an ugly correction.

~~~
pishpash
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.

~~~
eighthnate
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.

------
josephagoss
I think that anyone in markets such as Bitcoin or Ethereum should be getting
out now. It's obvious that we're at the peak and the bubble is soon to pop.

~~~
panarky
This has been "obvious" many times over the last 9 years. What's different
this time?

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dredmorbius
Recommended reading. _1929_. Galbraith.

[http://www.worldcat.org/title/great-
crash-1929/oclc/93339017...](http://www.worldcat.org/title/great-
crash-1929/oclc/933390176&referer=brief_results)

~~~
quickben
I doubt it would help.

So far I've seen four posts that are spot on, downvoted.

The general sentiment is towards hype and bubble, and it's just another echo
chamber reinforcing the spiral.

Not just here, and a lot more pronounced lately.

~~~
dredmorbius
There's a tremendous amount of motivation to keep speculative bubbles running
as long as possible. I'm not certain that expresses itself as self-delusion or
attempts to manipulate others, though I suspect bits of both.

Oh, and Galbraith covers that in his short, _very_ readable, book.

------
baxtr
Unfortunately I cannot access the article... could anyone summarize the
content? Thanks

~~~
dredmorbius
[http://archive.is/bNRMM](http://archive.is/bNRMM)

~~~
bendoernberg
Looks like you're shadowbanned Goldenkey

------
cm2187
There is almost not a week without an article in the Economist or/and the FT
about us reaching the peak of the market. I can't help thinking that it starts
to look like 2006 again.

~~~
hellofunk
But there is also not a week that goes by without an "expert" in the financial
media claiming we are due for a crash. Until there are fewer of these
"warnings", the market could very well just keep on truckin.

~~~
rdtsc
People who write these articles I think learned from the last crash that those
who "predicted" it became famous ("Did you hear, so and so called it, smack on
the nose, they must be a good economist. Let's have them write a book").

So now nobody wants to be left out, and so they predict crashes every week.
Eventually when a crash will happen they'll say "see I predicted it, where is
my book deal".

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

~~~
swandog46
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.

~~~
pg314
...beats _trying_ to time the market...

If you can time the market correctly, that is obviously the optimal strategy.

~~~
swandog46
Only barely (see "What if we could perfectly time the market?" in [0] which
cites [1]), and it is the height of self-delusion for anyone to think he or
she will time it correctly, when professionals fail to do so. Don't try!

[0] [https://www.bogleheads.org/blog/bogleheads-principles-
never-...](https://www.bogleheads.org/blog/bogleheads-principles-never-try-to-
time-the-market/)

[1] [https://www.schwab.com/resource-
center/insights/content/does...](https://www.schwab.com/resource-
center/insights/content/does-market-timing-work)

~~~
SomeStupidPoint
From [1]:

> Rather than putting it immediately into the market, he waited and invested
> after month-end January 1993—that year's monthly low point for the S&P 500.
> At the beginning of 1994, Peter received another $2,000. He waited and
> invested the money after March 1994, the monthly low point for the market
> for that year. He continued to time his investments perfectly every year
> through 2012.

That's hardly "perfectly timing the market" in the usual sense. I'd consider
"perfectly timing" to be sell at every peak and buy at every trough, so you're
always holding stocks when they're gaining versus the dollar and holding
dollars when stocks are losing versus the dollar.

It's impractical, but it's a _much_ better result -- the theoretical limit to
how much you could have made with perfect knowledge of all the pricing ahead
of time.

That analysis, by contrast, only looks at what happens if you have a _little_
perfect information -- and the answer is "not much".

------
daniel-cussen
Translation: wages are comparatively very low.

