The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: ctuser1 on August 10, 2020, 07:25:56 AM
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For me, any more than one of the following would flip the bubble trigger in my head:
1. My kids school-bus driver giving, or seriously asking for stock tips.
2. Ditto with the folks manning the shoe-shine stands in the Grand Central Station (that reminds me - I haven't been to GCT in 6 months now !!!).
3. The new-high/upgrade/new-high tango repeating at least 2 cycles. AAPL is close on this one indicator. It went up a lot recently (STILL does not seem overvalued compared to other tech stocks), and now the street is handing out new targets for this stock (I just saw a $600 one). If this cycle repeats once more, then that is a bubble indicator.
4. CNBC mentions non-cashflow indicators (e.g. "eyeballs") as frequently as earnings and other such balance sheet stuff.
5. People start to casually mention the 10X future. e.g. when bitcoin crossed $10k, you heard of the future where it will go to $100k.
Anything else?
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Do you mean a bubble that impacts the entire market? I have an example that's more limited.
After Hertz declared bankruptcy, Robinhood investors bought heavily. Hertz contemplated a stock offering - while in bankruptcy - until the SEC put a stop to it. None of that makes any sense - almost all the time, holders of a bankrupt company's stock get nothing in bankruptcy. It's very, very unlikely to be a good idea to invest after bankruptcy.
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I personally don't think you ever really can recognize a bubble without the benefit of hindsight. But that's just me.
-W
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Forex trading was big some years ago. The impending crash was obvious when a friend was interested in it and he mentioned that his barber was interested in it too. Yes, a stereotype come true.
On this board, the tell is when trading discussions pick up and when everyone is becoming a millionaire through a FAANG stock and not diversifying, even after they reach their FI number. We should worry when there's talk of tech stocks, like Tesla, never having a sane PE. In another thread, I mentioned the "Nifty Fifty" stocks from the 70s. Those were blue-chips that had high PEs that would guarantee (GUARANTEE!) you riches from the market. They did until they didn't.
A related tell is when there are more than the usual number of stock pickers who think they're the next Warren Buffet. Instead of accepting their luck, and acknowledging their high risk gambles, they think they can outplay the market through sheer intelligence. Been there, done that. But I'm sure they're smarter than me. :)
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For me a key one is when we see talking heads on TV arguing that things that have been undeniably been bad for stocks if you study the course of history to actually be good for stocks.
This would mean:
- Arguments made that expensive current valuations reflecting a strong economy and therefore good for future stock returns. All the historical evidence suggests the opposite; that excessive valuations lead tend to lead to long periods of underperformance
- Inflation being good for stocks; arguments made that rising prices can be pushed on down the chain of production to the consumer, therefore real profits are protected. Again, all historical evidence strongly suggests that stocks get derated and perform poorly during periods of rising and moderate/high inflation
- Arguments made that it doesn't matter even if stocks perform poorly over the new few years; as growth with always eventually return to their long term trend. Sure, they might, but the you may end up waiting much longer than just "the next few years".
- Arguments that risk can be discounted. These generally revolve around New Paradigm thinking, and that the Fed will protect investors from anything truly bad.
- When you see stuff like financial analysts being invited onto Gardening shows to talk about the green virtues of owning a Tesla.
TBH I see a lot of this already on mainstream financial channels. The V recovery in the US markets have emboldened investors old and new into New Paradigm thinking, and could well have sown the seeds of an imminent parabolic move up.
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I may well look back at these last few months sometime in the future if we are indeed in a bubble that bursts and recall the following things I’ve noticed in the last few weeks. I had a young coworker (in an unskilled, low pay position) mention he wants to get into day trading, I tried to talk him out of it. An older couple my family knows (with no trading or investment experience that we know of) got sucked into a stock trading pyramid scheme thing and was trying to recruit more people into it. Too soon to tell if these are normal, isolated cases or if there’s a greater force behind them
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I think culture has changed sufficiently that we can't just re-use some of the indicators of the past. For example, getting shoe shines at the train station is no longer a common enough thing to get multiple weekly observations. "What's on TV" has been replaced by millions of internet sites, videos, blogs, and media content almost everywhere has become more emotionally extreme and less rational. Also, themes from previous bubbles are no longer abandoned. Jim Cramer is still on cable TV and the internet advocating tech stocks. and there are still shows about how easy it is to flip houses for five and six-figure profits (I learned that remodeling a house generally involves walking around and talking while gesturing). The people we happen to know and encounter jump into and out of various media channels and social media groups, and so we are no longer sampling the wider culture with our handful of contacts and a handful of media companies like we were in the 90's.
More straightforward approach:
a) Did an index or market price for a thing double in the past 2-3 years? E.g. between 1995 and 2000, the Nasdaq rose about 400%. In 1998 the Nasdaq returned almost 40% and in 1999 it returned over 85%. Home prices in HCOL areas did something similar in the years prior to the 2008 housing bust. Between Jan. 2017 and now, the Nasdaq has more than doubled. Things rarely change in value this fast, so this implies a pricing error by the market, either early on or now. E.g. if a house that cost $200k today costs $400k next year, it was either priced too low today or there is a bubble next year. It didn't double in utility and the currency didn't lose half its value. Given the nature of bubbles as spikes above a long term trend line, it is safe to say the higher price is probably the error.
b) Are the "hot" sectors only "hot" due to government subsidies, such as the lack of a sales tax for online retailers that existed for many years, government-subsidized loans, low interest rates, discounted access to natural resources on public lands, or taxpayer support for new suburban/exurban road construction? Government policy has led to each of the last two bubbles, and arguably popped them too.
c) Does the object of market fascination have little or no utility to the buyers at the moment, but is suddenly being purchased for the expectation of future price gains? Tech stocks of the late 90's, precious metals, cryptocurrency, tulip bulbs, cash-flow negative real estate, bonds with sub-zero real yields, and various collectible memorabilia over the years come to mind.
These guidelines are enough to avoid all bubbles so far, but it is also possible for bubbles to bring down non-bubble markets when they popped. You might have steered clear of dot-com stocks in 2000 or housing in 2008, but if you held the indices you still got whacked. The presence of a bubble anywhere is a threat to markets everywhere, but bubbles are a constant fact of life nowadays, so you have to ask yourself if the size of the bubble is a threat. The sizes of the 1929 bubble, and 1999 tech bubble were apparent to all, but the true impacts of the housing bubble were somewhat ambiguous.
Today, I'm watching bonds. Most people do not realize how far and fast they can fall if it ever becomes necessary to raise interest rates. The market is certainly propped up by government actions. The size of this market is many times bigger than the tech bubble and the housing bubble combined. It's a potential financial apocalypse. Fortunately, I do not see inflation on the horizon or interest rates occurring in the near future. We are Japanified for the moment.
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George Soros on bubbles: “When I see a bubble forming, I rush in to buy, adding fuel to the fire,” he said in 2009. “That is not irrational.”
One such example is gold, which he described as the “ultimate asset bubble” in early 2010. Gold had soared 40 per cent the previous year and many commentators took his words to mean he believed the precious metal was set to fall.
However, Soros was actually buying gold, which was then trading at abouat $1,200, the reasoning being that buying into bubbles can be very profitable, if one gets out in time.
Soros did just that, selling most of his holdings in early 2011, some six months before the bubble burst after prices topped out above $1,900.
I highly recommend reading this post before thinking we are in a real bubble: https://joefahmy.com/2013/12/13/stories-1999 and https://joefahmy.com/2013/11/13/bubble/
Back in 2011 I couldn't drive a mile to the grocery store without seeing 1 or 2 people out on street corners holding huge signs with "we buy gold" on it. I couldn't read a local magazine with an ad by a mom in her 30s who had a new gold buying business she just started. I knew this was crazy, and sure enough it wasn't long after that the whole thing topped.
The stories of widows getting into the real estate game in 2006-2007 are nuts and tipped off more than a few people.
I don't consider the Robinhood traders of today to be equal to what was happening in the 90s. Robinhood has made it incredibly easy to open up an account and trade with just a few dollars. These people don't necessarily have a lot of money and while they can all pile onto a few stocks and move them for a little bit, they aren't doing this to the whole market IMO.
There are very good reasons for tech to be doing as well as it has, and for that to continue in the future. First off, technology has always been the growth industry of the future, it just got ahead of itself in the 90s. Along with that, while many parts of the world see very little or low growth, tech is growing like bonkers and taking over market share from traditional businesses. Secondly, a good chunk of tech companies (specifically software companies) have gross margins of 80%+ which would make a traditional business owner drool. When they stop growing so fast and focus on profitability, they will be much more profitable than any traditional company, making their higher valuation justified. Third - I work in the tech industry and see this firsthand - the move to the cloud starts off slow. Then it picks up steam as all new companies go straight to the cloud and skip the on-premise stuff altogether. Finally it's a full blown freight train and all traditional businesses with on-premise old school stuff decide they need to move to the cloud NOW. I noticed about 5 years ago it became incredibly difficult to sell our on-premise software to anyone, whereas the decades before that it was easy. But in the past year or two even old companies decided their on-premise stuff was a liability, and put a move to the cloud on their roadmap. Covid forced all those businesses to make the move to the cloud RIGHT NOW, and not wait another year or two like they were planning on. Any server, phone system, email Exchange server, or application running in house is seen as a serious liability to the business, and that stuff is being ripped out this year to make way for NetSuite, Intacct, RingCentral, Teams/Slack, Bill.com, AWS, Azure, DocuSign, Zoom, SalesForce, ZenDesk, ServiceNow, etc. There are very good reasons why these stocks are up 100% this year (as well as the past 5 years) - everyone is moving to them at the same time. So their revenues are growing 30-100%+ per year and not slowing down but even accelerating. If you want growth, tech is pretty much the only place you're going to find it, and they are growing at rates we've never seen a company that size grow before.
Earnings will matter for the new tech companies one day, but for now they don't. Investors want to see these companies hurry up and take over their market share completely as fast as possible to lock out any possible competitors. And that's what happens in software. Only a few players control the entire market. So all these companies are working to take market share, and this is the best strategy for them. One day they'll focus on profitability, and when they do they'll be insanely profitable. But for now, not investing every penny they make would be foolish.
Amazon and Netflix and Tesla are showing how well this strategy works and every other tech company is following their playbook.
On the consumer side, you have more people ordering online all the time instead of going into the store, which is benefiting Amazon, Etsy, Wayfair, Shopify at the expense of brick and mortar stores. So the Nasdaq will be going up while VTSAX will be going down as it holds all those companies who will eventually go out of business. You have consumers watching streaming services benefiting Netflix at the expense of CBS, Disney, Discovery. So the Nasdaq will benefit while VTSAX will suffer comparatively. You have consumers moving away from traditional banking to online banking/payments benefiting Square and Paypal at the expense of all the traditional banking companies.
There are very good reasons for tech to be performing so much better than the total stock market index.
There will be a bubble in these stocks, this type of disruption always results in one, but we're not there yet. We have a long way to go. And in the meantime I'm playing the long side until I see more signs of a real bubble. Maybe when I see an old, local, conservative financial advisor advertising his software portfolios for clients, or I hear old people talk about tech stocks, then I'll get worried.
My strategy at this time is when I start to see bubblicious behavior, I'll probably sell 25-50% of my tech stocks. The rest I'll use trailing stops to get me out in a unemotional way. That way I'll have captured most of the move upwards without participating in most of the move downwards. A trailing ATR stop like this is what I'll use https://www.semanticscholar.org/paper/Does-Trend-Following-Work-on-Stocks-Wilcox-Crittenden/1453464b12d66c43ba6d1b28b58baf4871f6b4bc
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If you want growth, tech is pretty much the only place you're going to find it, and they are growing at rates we've never seen a company that size grow before.
No doubt there are many great information companies.
The question is, how are their customers doing? E.g. if Best Buy goes bankrupt or Ford cuts back on marketing, how many information companies lose how many millions in sales? If 20 million people leave the upper middle class and join the working class, how many new $50k cars does Tesla not sell? If state and local governments cut back on information services due to falling tax revenue, what's the impact on Microsoft's growth? If unemployed consumers spend less, when does that show up in Google's ad referrals? If Facebook's ad clients are unable to generate sales, how long until Facebook must cut its ad prices? How many companies are going to pay huge amounts for cloud subscriptions while closing branch offices and laying off workers?
At some level, the non-information economy is the customer base for the information industry. Today the non-information economy is spending money on information services in a bid for survival. The bet is that this will continue through the recession, allowing the information companies to enjoy double-digit revenue growth while the rest of the economy shrinks by double-digits. It's a decent thesis - information outperformed most other sectors in 2008-09 - but it is far from assured.
The future could also look like the commodification of currently-precious cloud services, and intense pricing pressure on software companies as their customer base dwindles.
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For me, any more than one of the following would flip the bubble trigger in my head:
1. My kids school-bus driver giving, or seriously asking for stock tips.
2. Ditto with the folks manning the shoe-shine stands in the Grand Central Station (that reminds me - I haven't been to GCT in 6 months now !!!).
3. The new-high/upgrade/new-high tango repeating at least 2 cycles. AAPL is close on this one indicator. It went up a lot recently (STILL does not seem overvalued compared to other tech stocks), and now the street is handing out new targets for this stock (I just saw a $600 one). If this cycle repeats once more, then that is a bubble indicator.
4. CNBC mentions non-cashflow indicators (e.g. "eyeballs") as frequently as earnings and other such balance sheet stuff.
5. People start to casually mention the 10X future. e.g. when bitcoin crossed $10k, you heard of the future where it will go to $100k.
Anything else?
Last year I had seriously considered being a bus driver after hearing an ad on the radio on my way home from yet another 12 hour day. It sounded really appealing and I wished I was closer to a coast-FIRE number. I still like that idea, maybe I can convince people we're in a bubble if I start rambling on about withdrawal strategies, SORR, and buying the index.
I don't really have anything on bubbles though, I though Tesla was a bubble years ago at $200.
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Perhaps calling the end of the bear market before it's actually over (https://www.cnn.com/2020/08/11/investing/sp500-stock-market-record/index.html).
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I'm not sure about indicators, but an anti-indicator is a lot of people talking about a bubble.
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... "What's on TV" has been replaced by millions of internet sites, videos, blogs, and media content almost everywhere has become more emotionally extreme and less rational. Also, themes from previous bubbles are no longer abandoned. Jim Cramer is still on cable TV and the internet advocating tech stocks.
If Jim Cramer is one of your bubble indicators, you might take a closer look - he's advocating a barbell of tech stocks and Covid recovery stocks.
https://www.cnbc.com/2020/08/10/jim-cramer-everybody-hates-the-barbell-until-days-like-today.html
Today's tech stocks have profits, while the dot-com tech stocks had "eyeballs", or website visitors. When you look at the big tech companies, each dominates a significant area of modern life. Very profitable companies that are part of everyone's lives are very different from unprofitable companies that might have big profits at a vague future point.
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I'm not sure about indicators, but an anti-indicator is a lot of people talking about a bubble.
Agree with this. You need everyone on board that the good times will never end for a bubble to really be here.
Software, AI, biotech, clean energy are going to be drivers of the next bubble. It's going to feel like the world will never be the same and that'll get prices way out of line.
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I'm not sure about indicators, but an anti-indicator is a lot of people talking about a bubble.
But again, on the internet there are always a lot of people talking about any given outcome. How could we quantify an increase or decrease?
And if I recall correctly, there was a lot of consternation out for com stock valuations in 1999 too.
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I'm not sure about indicators, but an anti-indicator is a lot of people talking about a bubble.
And if I recall correctly, there was a lot of consternation out for com stock valuations in 1999 too.
I'm pretty sure that the chairman of the Fed called it a bubble in 1996.
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This thread is a bubble indicator: https://forum.mrmoneymustache.com/investor-alley/are-bear-markets-a-thing-of-the-past/
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This thread is a bubble indicator: https://forum.mrmoneymustache.com/investor-alley/are-bear-markets-a-thing-of-the-past/
Sentiment has evidently reached what looks like a permanently high plateau.
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I'm a mountain bike trailbuilder, leading small volunteer groups.
Last week, two parents and their four 8 to 10 year old boys came out to help. I swear two hours of the boys (not the parents!) conversation was about the market cap of Apple, and who could buy Amazon. No shit.
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bacchi - Most people in that thread disagree with the author. That author posted and left, so maybe they didn't their own thread, either.
I don't know how Congress will treat all the loans it's been making. If those loans are not forgiven, most U.S. companies will be heavily in debt, and bankruptcy could be their way out. In competitive industries like airlines, debt weighs on profit. If one airline goes bankrupt and suddenly becomes the only one to have reduced debts, they will wind up with higher profits. And that profit motive then motivates other airlines in the same situation to declare bankruptcy. So if every airline is made to be heavily in debt, one bankruptcy could trigger a chain reaction. Is that a bubble? Hard to say, without knowing how Congress will treat the loans it's providing to businesses.
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In competitive industries like airlines, debt weighs on profit. If one airline goes bankrupt and suddenly becomes the only one to have reduced debts, they will wind up with higher profits. And that profit motive then motivates other airlines in the same situation to declare bankruptcy. So if every airline is made to be heavily in debt, one bankruptcy could trigger a chain reaction. Is that a bubble?
Yup, but that story is 40 years old.
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bacchi - Most people in that thread disagree with the author. That author posted and left, so maybe they didn't their own thread, either.
I was the OP.
1. I didn't post a/my opinion but rather a question, hence the question mark. I have put off investing my nest egg for years because I have thought the stock market to be overvalued for some time.
2. I didn't leave...
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I'm a mountain bike trailbuilder, leading small volunteer groups.
Last week, two parents and their four 8 to 10 year old boys came out to help. I swear two hours of the boys (not the parents!) conversation was about the market cap of Apple, and who could buy Amazon. No shit.
I spent an entire hour long mountain bike ride with my 8 year old discussing what the "biggest" company in the world was, because that's what he wanted to talk about. I don't know that I'd use that as an indicator of a bubble, though. He also likes to talk about the biggest earthmover, truck, spaceship, continent, etc.
As an aside he is actually not a bad mini-ex operator, at 8! Now if I could just teach him some geometry for getting the radius right on turns...
-W
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I'm not sure about indicators, but an anti-indicator is a lot of people talking about a bubble.
But again, on the internet there are always a lot of people talking about any given outcome. How could we quantify an increase or decrease?
And if I recall correctly, there was a lot of consternation out for com stock valuations in 1999 too.
I would never take what anybody says about anything (especially on television) as an indicator. There are people whose job is to talk about one subject regardless of context or evidence. I remember seeing guys on CNBC talking about the next bubble and recession before the last one was even over. If you get enough people talking and talking often enough, one of them is going to end up right in hindsight just out of pure chance.
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bacchi - Most people in that thread disagree with the author. That author posted and left, so maybe they didn't their own thread, either.
I was the OP.
1. I didn't post a/my opinion but rather a question, hence the question mark. I have put off investing my nest egg for years because I have thought the stock market to be overvalued for some time.
2. I didn't leave...
Suggesting there will be no more bear markets is closer to trolling people than asking a question. That's why one of the replies was someone waiting for the fireworks.
You ignored the thread for 5 days, and then posted 10 minutes before your reply here. I'd call that leaving.
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You ignored the thread for 5 days, and then posted 10 minutes before your reply here. I'd call that leaving.
Five days is nothing. It's a message board, not instant messaging. I have obligations in the real world that take precedence. Yesterday I had time on the weekend to make a few posts sequentially. I'll admit it was a provocative title, aimed at invoking substantive discussion though, not trolling. I'll stop with this off-topic discussion here.
On topic: I'd call P/E ratio's like Tesla (>850) bubble indicators.
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For me, any more than one of the following would flip the bubble trigger in my head:
1. My kids school-bus driver giving, or seriously asking for stock tips.
2. Ditto with the folks manning the shoe-shine stands in the Grand Central Station (that reminds me - I haven't been to GCT in 6 months now !!!).
[snip]
Anything else?
Similarly, when financially non-savvy friends and family believe a certain asset class is easy or "a sure bet" it gets my attention.
I believe there's a theoretical underpinning to support this. There are a fixed number of potential investors. In a growing asset, each new investor entering the market is very likely, on average, marginally less competent than the previous entrant. Thus the collective "wisdom" of the crowd cumulatively dilutes with each new investor, which can then result in things like pets.com.
Problem is, what to do about it? I'm fairly pessimistic, so I perceive bubbles forming years before they pop. But timing is everything. If I sat on the sidelines for 2-3 years at a time I'd miss out on huge gains, and each year it doesn't pop only adds to the stress as things could keep increasing much longer than anticipated (e.g. the run up after the Great Recession).
Therefore, none of this changes my investment strategy. Though I do occasionally try to talk sense into said friends and family, at least those willing to listen. Being FIRE lends some degree of credibility.
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For me, any more than one of the following would flip the bubble trigger in my head:
1. My kids school-bus driver giving, or seriously asking for stock tips.
2. Ditto with the folks manning the shoe-shine stands in the Grand Central Station (that reminds me - I haven't been to GCT in 6 months now !!!).
[snip]
Anything else?
Similarly, when financially non-savvy friends and family believe a certain asset class is easy or "a sure bet" it gets my attention.
I believe there's a theoretical underpinning to support this. There are a fixed number of potential investors. In a growing asset, each new investor entering the market is very likely, on average, marginally less competent than the previous entrant. Thus the collective "wisdom" of the crowd cumulatively dilutes with each new investor, which can then result in things like pets.com.
Problem is, what to do about it? I'm fairly pessimistic, so I perceive bubbles forming years before they pop. But timing is everything. If I sat on the sidelines for 2-3 years at a time I'd miss out on huge gains, and each year it doesn't pop only adds to the stress as things could keep increasing much longer than anticipated (e.g. the run up after the Great Recession).
Therefore, none of this changes my investment strategy. Though I do occasionally try to talk sense into said friends and family, at least those willing to listen. Being FIRE lends some degree of credibility.
I am like you. It has a lot of upsides, but also some downsides. Some people from my law school who graduated when I did skipped the firm path and went down to Florida and bought a ton of foreclosures in 2009-2011. I think their company is worth $100 million plus. My conservative approach (legal practice + VTSAX) has made me comfortable but I doubt I'm ever going to catch up to them!
I do expect they had some family money backing them on that. My parents are comfortable, but I would not have wanted to put them up to cutting me big checks that I might potentially lose. So off to the salt mines I went.
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I believe there's a theoretical underpinning to support this. There are a fixed number of potential investors. In a growing asset, each new investor entering the market is very likely, on average, marginally less competent than the previous entrant. Thus the collective "wisdom" of the crowd cumulatively dilutes with each new investor, which can then result in things like pets.com.
Good analysis! More investors means more money which means the spiral continues. The question is, then, what causes it to pop? If Tesla is still a viable company, when does reality set in? Maximum buyers have bet on it and the last group of buyers grow tired of waiting?
Problem is, what to do about it? I'm fairly pessimistic, so I perceive bubbles forming years before they pop. But timing is everything. If I sat on the sidelines for 2-3 years at a time I'd miss out on huge gains, and each year it doesn't pop only adds to the stress as things could keep increasing much longer than anticipated (e.g. the run up after the Great Recession).
I recall that a former fed board member sold his townhouse in DC expecting the housing crash. He was eventually right but he also had to rent for a few years.
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For me, any more than one of the following would flip the bubble trigger in my head:
1. My kids school-bus driver giving, or seriously asking for stock tips.
2. Ditto with the folks manning the shoe-shine stands in the Grand Central Station (that reminds me - I haven't been to GCT in 6 months now !!!).
[snip]
Anything else?
Similarly, when financially non-savvy friends and family believe a certain asset class is easy or "a sure bet" it gets my attention.
I believe there's a theoretical underpinning to support this. There are a fixed number of potential investors. In a growing asset, each new investor entering the market is very likely, on average, marginally less competent than the previous entrant. Thus the collective "wisdom" of the crowd cumulatively dilutes with each new investor, which can then result in things like pets.com.
Problem is, what to do about it? I'm fairly pessimistic, so I perceive bubbles forming years before they pop. But timing is everything. If I sat on the sidelines for 2-3 years at a time I'd miss out on huge gains, and each year it doesn't pop only adds to the stress as things could keep increasing much longer than anticipated (e.g. the run up after the Great Recession).
Therefore, none of this changes my investment strategy. Though I do occasionally try to talk sense into said friends and family, at least those willing to listen. Being FIRE lends some degree of credibility.
I am like you. It has a lot of upsides, but also some downsides. Some people from my law school who graduated when I did skipped the firm path and went down to Florida and bought a ton of foreclosures in 2009-2011. I think their company is worth $100 million plus. My conservative approach (legal practice + VTSAX) has made me comfortable but I doubt I'm ever going to catch up to them!
I do expect they had some family money backing them on that. My parents are comfortable, but I would not have wanted to put them up to cutting me big checks that I might potentially lose. So off to the salt mines I went.
In some ways I'm conservative. E.g. spending way less than we make, and keeping a large emergency fund. But in other ways I'm more aggressive, especially if I find a good value while running the numbers.
In March of 2009 panic was everywhere. At the time we had cash on the sidelines (international job assignment and uncertain expenditures) that became freed-up. I reasoned that either everything would continue to go to hell in a hand basket in which case money would be essentially useless or, things would recover and it was the buying opportunity of a lifetime based on the Shiller PE ratio and other valuations. So we took this cash along with whatever else we could pull together, and went all in in the total stock market. Which paid off rather sooner than we expected.
Then a few years later, while real estate was still languishing, I started analyzing cap rates (and other metrics) for rental properties in my area. Everyone at that time was very sour on real estate. Anyone else remember all the hipsters talking up the "rental economy" back then? But there were deals to be had. So we took the plunge on an investment property. Not only did it produce a great income stream for ~8 years, but we recently sold for about 75% more than we paid for it.
But I never got into buying distressed properties. I looked into it for a bit and decided it was somewhat of a specialized skill with a number of potential legal pitfalls. Having a law degree seems like the right tool to navigate that market.
IMO, the most important first rule of investing is to know yourself. So good for you being honest with yourself about what you're really willing to risk. Sounds like your friends are doing well, and good for them, but often everything is not as it seems.
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I believe there's a theoretical underpinning to support this. There are a fixed number of potential investors. In a growing asset, each new investor entering the market is very likely, on average, marginally less competent than the previous entrant. Thus the collective "wisdom" of the crowd cumulatively dilutes with each new investor, which can then result in things like pets.com.
Good analysis! More investors means more money which means the spiral continues. The question is, then, what causes it to pop? If Tesla is still a viable company, when does reality set in? Maximum buyers have bet on it and the last group of buyers grow tired of waiting?
I'm absolutely certain that I don't understand market psychology. But my guess is something like yours: when there are no more greater fools to sell to and savvy investors start cashing in.
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I believe there's a theoretical underpinning to support this. There are a fixed number of potential investors. In a growing asset, each new investor entering the market is very likely, on average, marginally less competent than the previous entrant. Thus the collective "wisdom" of the crowd cumulatively dilutes with each new investor, which can then result in things like pets.com.
Good analysis! More investors means more money which means the spiral continues. The question is, then, what causes it to pop? If Tesla is still a viable company, when does reality set in? Maximum buyers have bet on it and the last group of buyers grow tired of waiting?
I'm absolutely certain that I don't understand market psychology. But my guess is something like yours: when there are no more greater fools to sell to and savvy investors start cashing in.
That's how a speculation bubble pops, historically. When you've got a bunch of folks buying in simply because they think they can sell it to someone else for more with no logical connection to the value of the asset, eventually you'll run out of people willing to pay the rising price and the buyers that have been sitting on the stock waiting for that peak jump ship.
Back in the late 90s you had companies nobody had heard of having IPOs go up several hundred percent in the first week entirely on promises. I think Buffet and a few others started to back out of the market when that happened, but most folks won't want to leave for fear of calling it early and missing out on a few more months of gains. You have some legit tech companies that survived that purge, but even today adjusted for inflation they are not valued as highly as they were 20 years ago.
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That's how a speculation bubble pops, historically. When you've got a bunch of folks buying in simply because they think they can sell it to someone else for more with no logical connection to the value of the asset, eventually you'll run out of people willing to pay the rising price and the buyers that have been sitting on the stock waiting for that peak jump ship.
But what if you have a person who has unlimited money and won't let the market fall by more than x%?
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That's how a speculation bubble pops, historically. When you've got a bunch of folks buying in simply because they think they can sell it to someone else for more with no logical connection to the value of the asset, eventually you'll run out of people willing to pay the rising price and the buyers that have been sitting on the stock waiting for that peak jump ship.
But what if you have a person who has unlimited money and won't let the market fall by more than x%?
That is a fantastic question.
I assume the market stays up and then one day you look up and it costs $237 for a big mac. But when that happens and how, I don't have the foggiest idea.
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That's how a speculation bubble pops, historically. When you've got a bunch of folks buying in simply because they think they can sell it to someone else for more with no logical connection to the value of the asset, eventually you'll run out of people willing to pay the rising price and the buyers that have been sitting on the stock waiting for that peak jump ship.
But what if you have a person who has unlimited money and won't let the market fall by more than x%?
That is a fantastic question.
I assume the market stays up and then one day you look up and it costs $237 for a big mac. But when that happens and how, I don't have the foggiest idea.
Eventually that “person” would end up owning the entire market cap and you’d have either feudalism/fascism or communism (not much difference between the two at a fundamental level). A simulation can be run using a monopoly board game.
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That's how a speculation bubble pops, historically. When you've got a bunch of folks buying in simply because they think they can sell it to someone else for more with no logical connection to the value of the asset, eventually you'll run out of people willing to pay the rising price and the buyers that have been sitting on the stock waiting for that peak jump ship.
But what if you have a person who has unlimited money and won't let the market fall by more than x%?
That is a fantastic question.
I assume the market stays up and then one day you look up and it costs $237 for a big mac. But when that happens and how, I don't have the foggiest idea.
Asset inflation is unlikely to cause Big Mac inflation.
That would only happen if there is some sort of "trickle down effect" in play here, such that money from AAPL/TSLA owners eventually trickle down to the majority of Big Mac buyers.
In an ideal world populated by Homo Economicus, such trickle down would surely happen. In the real world, however, that does not seem to be the case.
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Headlines like these make me nostalgic for the late 90s.
https://www.reuters.com/article/us-global-markets-valuation-analysis/tech-fuelled-everythings-awesome-rally-looks-unstoppable-idUSKCN25E0KW (https://www.reuters.com/article/us-global-markets-valuation-analysis/tech-fuelled-everythings-awesome-rally-looks-unstoppable-idUSKCN25E0KW)
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A group of my very broke and financially un-savvy friends have become options traders, does that count?
These guys don’t know what an IRA is and they are trading options!
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I kind of feel like a stock market bubble is currently a non-factor based on government intervention. If we have a large stock market decline in the 30% to 50% range, the government is going to intervene and pump the economy full of money until the stock market recovers.
Based on how the government is currently behaving, it seems unlikely to me that we would see a stock market decline that lasts for more than 18 months.
Am I missing anything?
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I kind of feel like a stock market bubble is currently a non-factor based on government intervention. If we have a large stock market decline in the 30% to 50% range, the government is going to intervene and pump the economy full of money until the stock market recovers.
Based on how the government is currently behaving, it seems unlikely to me that we would see a stock market decline that lasts for more than 18 months.
Am I missing anything?
If investors suddenly became unwilling to pay high PE ratios for stocks, the only way to prevent a multi-year decline like we saw in the early 2000’s would be for the government to buy some critical mass of market liquidity every day, propping up prices by creating a shortage of shares for everyone else. This process might eventually be ended by (a) a rise in interest rates due to the government’s borrowing or money printing, (b) effective nationalization of most productive industry, or (c) businesses responding to government incentives to over-leverage or continually dilute existing shares.
(C) is interesting because it reflects continuation of the trends we saw during the last decade of QE. An artificially low cost of capital creates the incentive to boost ROE by taking on more and more debt. However, firms eventually reach a tipping point where their valuation declines due to their riskiness more than it improves due to their financial leverage. This tipping point on the debt/EV spectrum is artificially shifted by either a perceived “fed put” or an artificially low cost of capital. I.e. if the market would lend to over indebted corporation X for 6% interest, but the government will lend to them for 4%, then corporation X is more likely to increase their debt because the government is there lending to them at artificially low rates. Consumers often take on odious debts because of low interest rates on cars or housing (another sector with subsidized debt) and this limits their ability to do other things. Similarly, a highly indebted corporation might be less willing to spend money on growth and innovation (example: Why is Ford not the leader in electric vehicles?). Clayton Christensen wrote a few things about how the optimal capital structure for boosting stock metrics is different than the optimal capital structure for growth and innovation.
These are all factors that could lead to asset misallocation and a long-term economic decline. But what would make non-government investors not be willing to pay high PE ratios in the short term? Classical economists have been waiting, Linus-like, for high inflation to appear in Japan for decades, and in the US for one decade. If the “fed put” was called into question or if QE was tapered off, that would do it. Also, if corporations started playing a game of “dilute the government, they’ll just come back for more” then regular investors might balk at joining the government in victimhood. Finally, if consumer demand declined, then it would be hard for regular investors to justify paying high PE’s. The pandemic will bankrupt a lot of Americans (20% of the infected end up hospitalized at great personal expense AND loss of wages). The other factor could be greater-fool theory among investors; if the fed is going to be buying overpriced assets in the future then there will be someone to buy your overpriced asset at that time, so why not just buy it?
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I have seen ads on facebook trying to lure people into multi-family investing. I think multi-family investing can be great but it seems odd that someone took an ad out on facebook to lure people into such investments.
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https://www.bloomberg.com/news/articles/2020-08-22/dot-com-survivors-give-their-verdict-on-the-current-tech-boom
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TSLA seems to be in a bubble to me. It definitely breached this rule I use:
"3. The new-high/upgrade/new-high tango repeating at least 2 cycles. "
At this point, the major driver for TSLA seems to be the greater fool theory. The pundits at CNBC and elsewhere have completely abandoned even attempting to justify the price via some intrinsic value mechanism.
AAPL is still not in a real bubble IMO. 37X PE is just on the edge of being justifiable if you have a very high (=double digit %) growth assumptions. I have a large (for me) position in AAPL that has now grown to become 40%+ of my total portfolio, and I am quite split when to diversify a little bit away from it.
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I think it's best to not have a bubble indicator.
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Used sports car prices... at least the ones I watch. Through the roof right now, just like in 2007
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I think it's best to not have a bubble indicator.
Is it for the same reason as waltworks above: "I personally don't think you ever really can recognize a bubble without the benefit of hindsight."? Or do you have some other point of view?
Asking because I want to educate myself on all the possible ways to think about it.
I have to work hard to control my trigger finder itch to market time - bad habits from when I first started trading (and called it "investing"). Learning to think from as many angles as possible helps assuage that. I call it "intentional analysis paralysis".
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Here we go.
Another round of target price hikes for AAPL.
https://seekingalpha.com/news/3608104-apple-gets-street-high-price-target-morgan-stanley-on-ecosystem-strength
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I think it's best to not have a bubble indicator.
Is it for the same reason as waltworks above: "I personally don't think you ever really can recognize a bubble without the benefit of hindsight."? Or do you have some other point of view?
Asking because I want to educate myself on all the possible ways to think about it.
I have to work hard to control my trigger finder itch to market time - bad habits from when I first started trading (and called it "investing"). Learning to think from as many angles as possible helps assuage that. I call it "intentional analysis paralysis".
There were tons of people who go out before the Nasdaq bust in 1999-2000, and hoards of people who auctioned away their coastal properties to breathless, desperate trend chasers in 2006-2007. There comes a point where the rationale for a positive return is something like "all these dot com companies will each, individually, dominate the planet in 5 years" or "middle-class houses in this place will cost $10 million 10 years from now and middle class people will pay those prices."
So it is possible. The indicator is the lack of any reasonable rationale to support the case that an asset will outperform competing investments. E.g. treasuries outperformed most tech stocks such as Cisco, Microsoft, and Yahoo purchased in 2000 for the next 15 years.
To both catch a bubble's upside and also sell before the burst, one would have to take a trend-following approach to get in early on, and then switch to a rational/analytical approach which would lead one to bail out. Thus, there is a timing component - not so much in the trading but in the change of mentality. Additionally, that switch would have to occur at exactly the time the status quo mentality seemed to be working beautifully. Good luck with that game.
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Investors bidding up the prices of bankrupt companies... might be a bubble indicator.
Earlier in this thread I mentioned HTZ, which was driven up in price by Robinhood investors after the company went bankrupt.
https://www.forbes.com/advisor/investing/robinhood-bankrupt-hertz/
On to round 2...
One of the stocks I bought had an incredibly valuable recovery, which made it worth the bankruptcy risk. Risk happens. The company went bankrupt, and I braced for a total loss as the stock closed at 25% of it's prior value. The next day, the price went up +56%... a day later, another jump in price. So rather than getting a -100% loss, I've sold at a -47% loss. Considering I expected bankruptcies to happen, and expected a total loss when they did, I consider it good luck that people are bidding up the stock of bankrupt companies.
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IMO the US markets, led by Nasdaq stocks, are now clearly transitioning from a Fed-backed recovery into a full blown speculative asset bubble.
The telling characteristic is the lack of any significant corrections in Nasdaq that characterises a normal healthy bull market. When a market does 70% without pausing for breath that is bubble behaviour.
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IMO the US markets, led by Nasdaq stocks, are now clearly transitioning from a Fed-backed recovery into a full blown speculative asset bubble.
The telling characteristic is the lack of any significant corrections in Nasdaq that characterises a normal healthy bull market. When a market does 70% without pausing for breath that is bubble behaviour.
With a falling vix, it might be time to buy calls on the nasdaq index or QQQ while the bubble inflates. Massive leverage. Limited downside. A chance to get out when things get super crazy (as opposed to just crazy).
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IMO the US markets, led by Nasdaq stocks, are now clearly transitioning from a Fed-backed recovery into a full blown speculative asset bubble.
The telling characteristic is the lack of any significant corrections in Nasdaq that characterises a normal healthy bull market. When a market does 70% without pausing for breath that is bubble behaviour.
With a falling vix, it might be time to buy calls on the nasdaq index or QQQ while the bubble inflates. Massive leverage. Limited downside. A chance to get out when things get super crazy (as opposed to just crazy).
Or buying calls on VIX or buying puts on QQQ.
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With a falling vix, it might be time to buy calls on the nasdaq index or QQQ while the bubble inflates. Massive leverage. Limited downside. A chance to get out when things get super crazy (as opposed to just crazy).
Funny, I just saw someone refer to this approach as "the WSB version of index investing."
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Both Apple and Tesla stocks surging on news of a stock-split.
Not an earnings report, not a new product line, not even an inspirational speech outlining a new executive vision.
A stock-split.
One of two things is at work: either investors have absolutely no idea how a stock-split affects the value of the company (it doesn't), or something other than fundamentals is now the basis of stock price.
In either case, I'm expecting Dr. Reality to give some lessons on the topic in a few moments.
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I have co-workers who own apple and tesla and are convinced they are investing geniuses. I asked them if they know what all those acronyms are on the screen of the TSLA and APPL tickers on Robinhood. No idea what a PE ratio or a market cap is. I ask about Teslas PE ratio and how many cars they have sold. I ask... "What's APPL got that is going to maintain that stock price?" "5g!!" "But everyone else is selling a 5g smart phone too, Apple doesn't sell the infrastructure that is needed to bring 5g to market, they are the ones who are going to kill it." "They also own the most expensive office space and retail space in the country and it's not even in use right now", I retort. Just that "well, these two stocks have done really well for me". And I'm sure they have.
I really think there will be a significant institutional pull out at some point in time, maybe soon. There is a ton of profit ready to be taken. I would definitely have a stop loss set. What will be the catalyst(s) for the sell off?
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When the NY Times starts running articles on how people with very little savings cashed out to buy whatever's having a run. So, in the real estate bubble, a housekeeper in Jamaica Queens bought four houses. In the last Bitcoin run up, same thing, an older woman whose kids begged her not to cash in her savings did so to buy Bitcoin. I believe she was also a housekeeper. And after that, an indicator to me is when my friends with no interest in investing want to buy into the bubble (like Bitcoin).
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Forex trading was big some years ago. The impending crash was obvious when a friend was interested in it and he mentioned that his barber was interested in it too. Yes, a stereotype come true.
On this board, the tell is when trading discussions pick up and when everyone is becoming a millionaire through a FAANG stock and not diversifying, even after they reach their FI number. We should worry when there's talk of tech stocks, like Tesla, never having a sane PE. In another thread, I mentioned the "Nifty Fifty" stocks from the 70s. Those were blue-chips that had high PEs that would guarantee (GUARANTEE!) you riches from the market. They did until they didn't.
A related tell is when there are more than the usual number of stock pickers who think they're the next Warren Buffet. Instead of accepting their luck, and acknowledging their high risk gambles, they think they can outplay the market through sheer intelligence. Been there, done that. But I'm sure they're smarter than me. :)
Actually the Nifty-Fifty seems to have done OK (close to SP500 growth) market peak 1972 to 1996 at least.
http://csinvesting.org/wp-content/uploads/2015/03/valuing-growth-stocks-revisiting-the-nifty-fifty.pdf
https://www.virtus.com/assets/files/3ez/the_nifty_fifty_and_the_old_normal_5852.pdf same data as above... I would caution that there is a "New Nifty 50" out there so watch your comparisons.
This would have been a buy-and-hold deal, any messing around with it and you'd surely have gotten worst results.
On topic, yep, when you are getting unsolicited stock tips, time to not put any money in. No need to sell if you don't need the money.
That might violate your Investment Policy Statement IPS (Asset Allocation), and you don't want to do that on a whim. You have an IPS don't you?
You need 30-50 individual stocks in random sectors to get diversification benefits. Or you could buy a total stock index and be done.
I have a friend who is a bright guy, used to be a financial advisor, who I use as a bubble indicator.
1987 -- he said "I know a guy who is pulling down $$$$$ in the stock market" -- we were students then and had no money.
~2003? -- not me but he got a client into bonds for Worldcom, Enron, and a third one ?Tyco? for a "trifecta" of awful investments.
2007-- enthusiasm for house flipping - right before the GFC meltdown of subprime mortgage loans.
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This was probably 6 or 8 weeks ago...
One of my charge nurses was trying to log onto her Fidelity account on a work computer. First I told her it wasn't a good idea to log onto that account on a work computer and then I asked her what she was doing. She did not mind me asking said she was reducing her 403b contributions so she could buy more Apple stock. This was around the stock split time.
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This was probably 6 or 8 weeks ago...
One of my charge nurses was trying to log onto her Fidelity account on a work computer. First I told her it wasn't a good idea to log onto that account on a work computer and then I asked her what she was doing. She did not mind me asking said she was reducing her 403b contributions so she could buy more Apple stock. This was around the stock split time.
Thanks for the warning...
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We were notified that after this year our company's 401k match will be "discretionary" instead of guaranteed. I was bemoaning this change with a co-worker who revealed he stopped contributing to his retirement account last summer and had pulled out the maximum available under the Covid CARES program and promptly doubled his $$ in his TIRA using growth stocks.
Kinda wish I would have thought of that.
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Buffett and Munger rarely say what they think what the market is likely to do, but the Berkshire's vice chairman now sees the market is frenzied enough to categorically state that forward 10 yr returns will likely be lower than the past 10 years.
https://www.benzinga.com/news/20/12/18791727/berkshires-charlie-munger-warns-against-market-frenzy-expects-lower-returns-in-next-decade
Charlie seems quite canny as always, while Buffett has become a cheerleader for US equities and the American tailwind, Charlie is warning of the consequences of excess monetary stimulus.
full interview
https://www.rev.com/transcript-editor/shared/t-xPLHgkxy9NAKPAlt-VoatPsopm1gorqhg6PVhV-XUifRwYbyW8nlUxK4Lyc0LxIt7NNaVa-sf_c1INdNX0I1rPmgI?loadFrom=PastedDeeplink&ts=2.07
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Given that the annual return over the last decade was almost 14%, that's a bet I'd be willing to make too.
So what?
-W
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Given that the annual return over the last decade was almost 14%, that's a bet I'd be willing to make too.
So what?
-W
I'd take 13% for the next 10 years.
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Given that the annual return over the last decade was almost 14%, that's a bet I'd be willing to make too.
So what?
-W
True, still my feeling is that investors have become conditioned to think that 14% is normal... it certainly isn't..
Moreover I think its undeniable that we are seeing all the classic signs of overexurberance identifyable in a bubble:
Tech sector on pace to double over a year
The return of retail traders
Bitcoin to $1m apparently
A Wave of IPOs, most of which are soaring.. IPO investing isn't meant to be this easy
The idea that old constraints no longer apply and you can have perpetual profit growth with no underlying economic growth
The reinforced belief that the Central Banks can quickly and painlessly mop when things go wrong and there is no consequences to debasing your currency
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The combo of stupid-high valuations, widespread bullishness, and massive federal stimulus suggests a bubble is about to form. The trick is to harvest as much of the bubble as possible and to set up a safety net for oneself to fall into when the bubble pops. Looking at a “Calls and Cash” or protective put portfolio for later in 2021, but for now I’m riding the momentum like every other nitwitted retail investor.
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I agree that we're seeing a lot of classic bubble indicators, but you could make largely the same argument for the last 5 years or so (ie, super low interest rates/Fed backstopping everything, lots of IPOs, tech companies doing great, etc, etc). It could all end tomorrow, or it could keep going for years and never crash back to the level it's at now.
Or market values could just stagnate while earnings catch up. Who the hell knows? It's TINA all the way down.
-W
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I agree that we're seeing a lot of classic bubble indicators, but you could make largely the same argument for the last 5 years or so (ie, super low interest rates/Fed backstopping everything, lots of IPOs, tech companies doing great, etc, etc). It could all end tomorrow, or it could keep going for years and never crash back to the level it's at now.
Or market values could just stagnate while earnings catch up. Who the hell knows? It's TINA all the way down.
-W
Absolutely. And if there is Fed induced asset inflation, does that make it a bubble?
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I agree that we're seeing a lot of classic bubble indicators, but you could make largely the same argument for the last 5 years or so (ie, super low interest rates/Fed backstopping everything, lots of IPOs, tech companies doing great, etc, etc). It could all end tomorrow, or it could keep going for years and never crash back to the level it's at now.
Or market values could just stagnate while earnings catch up. Who the hell knows? It's TINA all the way down.
-W
I’ve never found TINA to be a convincing argument for stocks. To say prices will rise because more people just like you will buy into stocks due to TINA sounds a lot like the rationale for a MLM scheme, or the rationale for buying Yahoo in late ‘99. Well, markets run out of buyers all the time, and not because an alternative appeared.
Plus there always is an alternative for middle class blokes. Insulation, education, and mortgage prepayment come to mind, but cash also has option value. I.e. if the market drops 30% only those with cash get the opportunity to go all in.
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I agree that we're seeing a lot of classic bubble indicators, but you could make largely the same argument for the last 5 years or so (ie, super low interest rates/Fed backstopping everything, lots of IPOs, tech companies doing great, etc, etc). It could all end tomorrow, or it could keep going for years and never crash back to the level it's at now.
Or market values could just stagnate while earnings catch up. Who the hell knows? It's TINA all the way down.
-W
... To say prices will rise because more people just like you will buy into stocks due to TINA sounds a lot like the rationale for a MLM scheme, or the rationale for buying Yahoo in late ‘99. Well, markets run out of buyers all the time, and not because an alternative appeared.
I think the term is "greater fool investing". The usual narrative of the 2000 bust was that no one realized how overpriced everything was. In fact, everyone knew that things were overpriced, and had known for years. But foolish investments were okay, because you could always sell them to a greater fool. What caused the recession was that the supply of greater fools ran out.
Very much like a MLM.
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I agree that we're seeing a lot of classic bubble indicators, but you could make largely the same argument for the last 5 years or so (ie, super low interest rates/Fed backstopping everything, lots of IPOs, tech companies doing great, etc, etc). It could all end tomorrow, or it could keep going for years and never crash back to the level it's at now.
Or market values could just stagnate while earnings catch up. Who the hell knows? It's TINA all the way down.
-W
I’ve never found TINA to be a convincing argument for stocks. To say prices will rise because more people just like you will buy into stocks due to TINA sounds a lot like the rationale for a MLM scheme, or the rationale for buying Yahoo in late ‘99. Well, markets run out of buyers all the time, and not because an alternative appeared.
Plus there always is an alternative for middle class blokes. Insulation, education, and mortgage prepayment come to mind, but cash also has option value. I.e. if the market drops 30% only those with cash get the opportunity to go all in.
Meh, that never works worth crap. I've been through several crashes, and I didn't do anything. Just kept on trucking. It worked fine, it'll work fine this time too. Sitting in cash isn't without risk, and I know an awful lot of people who have been keeping "dry powder" for the better part of a decade now. Guess what, even a 70% crash isn't taking us back to the levels they thought were overvalued back then, and they missed out on a decent amount in dividends too. Guess who's FI now and who isn't?
This is not to say I think values aren't totally insane right now, though. I'm building an ADU with my excess cashflow to rent out, and reducing my weekly stock input accordingly to fund it. But I'm still buying.
-W
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I agree that we're seeing a lot of classic bubble indicators, but you could make largely the same argument for the last 5 years or so (ie, super low interest rates/Fed backstopping everything, lots of IPOs, tech companies doing great, etc, etc). It could all end tomorrow, or it could keep going for years and never crash back to the level it's at now.
Or market values could just stagnate while earnings catch up. Who the hell knows? It's TINA all the way down.
-W
I’ve never found TINA to be a convincing argument for stocks. To say prices will rise because more people just like you will buy into stocks due to TINA sounds a lot like the rationale for a MLM scheme, or the rationale for buying Yahoo in late ‘99. Well, markets run out of buyers all the time, and not because an alternative appeared.
TINA doesn't mean that "prices will rise because more people just like you will buy into stocks due to TINA" it means "there is no alternative."
Furthermore, saying that TINA to equities is not at all like saying that TINA to Yahoo stock in in 1999. Not only was every other publicly traded company an alternative but the 30 year treasury bond was yielding over 5% for all of 1999 (over 6% at the end).
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I agree that we're seeing a lot of classic bubble indicators, but you could make largely the same argument for the last 5 years or so (ie, super low interest rates/Fed backstopping everything, lots of IPOs, tech companies doing great, etc, etc). It could all end tomorrow, or it could keep going for years and never crash back to the level it's at now.
Or market values could just stagnate while earnings catch up. Who the hell knows? It's TINA all the way down.
-W
I’ve never found TINA to be a convincing argument for stocks. To say prices will rise because more people just like you will buy into stocks due to TINA sounds a lot like the rationale for a MLM scheme, or the rationale for buying Yahoo in late ‘99. Well, markets run out of buyers all the time, and not because an alternative appeared.
TINA doesn't mean that "prices will rise because more people just like you will buy into stocks due to TINA" it means "there is no alternative."
Furthermore, saying that TINA to equities is not at all like saying that TINA to Yahoo stock in in 1999. Not only was every other publicly traded company an alternative but the 30 year treasury bond was yielding over 5% for all of 1999 (over 6% at the end).
I agree there were lots of alternatives in 1999, but because of the tech crash a lot of "value" stocks also collapsed for the next 3 years. I remember at the time I agreed with the bubble talk but was convinced the carnage would be limited to one sector. Woopsie!
I disagree that there are no alternatives today. There are numerous REITs (non-retail, non-office) and preferreds yielding over 5% today. My Sallie Mae bonds are yielding around 7%. Additionally, options can be used to create a position that is protected from any major downturn no matter what this side of a large asteroid strike. Buy a collar strategy fund like ETJ if you desire to keep it simple; it yields 7%. Foreign indexes like the UK, Canada, most of Europe, and emerging markets still have historically reasonable forward PE ratios. If the everything bubble expanded to cover even these, so that there was no reasonable earnings yield or interest to be earned anywhere in the world, the option value of holding cash would exceed the benefits of equities or bonds. Always an alternative.
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There are numerous REITs... Foreign indexes like the UK, Canada, most of Europe, and emerging markets still have historically reasonable forward PE ratios.
Well, I'm 99% VT which includes both REITs and foreign equities. I said equities, I never said US non-REIT equities.
If the everything bubble expanded to cover even these, so that there was no reasonable earnings yield or interest to be earned anywhere in the world, the option value of holding cash would exceed the benefits of equities or bonds.
Maybe to you. I'd still rather buy productive assets that try to go up in value than an asset that tries to go down in value.
Always an alternative.
Strictly speaking, yes, there is always an alternative. I could spend all my money on cocaine and gambling, or guns. Maybe I should say There Is No Good Alternative, TINGA. Actually, if you have the stomach for it real estate might be a good alternative. I just don't want to deal with the hassle and idiosyncratic risk.
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The combo of stupid-high valuations, widespread bullishness, and massive federal stimulus suggests a bubble is about to form. The trick is to harvest as much of the bubble as possible and to set up a safety net for oneself to fall into when the bubble pops. Looking at a “Calls and Cash” or protective put portfolio for later in 2021, but for now I’m riding the momentum like every other nitwitted retail investor.
Imo it isn’t “about” to form.. we’re already in the latter stages of one. The blowoff phase usually runs for about a year or so, with the most of spectacular gains coming right at the end, eg 20-30% gains per month of the last couple of months, which looking at how Nasdaq is behaving it looks like we could hit that final top in the next few months.
Another sign that we are at this stage is the widespread FOMO as everyone completely disregards the possibility of downside and are far more “afraid” of missing out.
There is a difference between the cautious optimism of a bull market and every lemming blindly piling into hot stocks that characterises a blowoff bubble.
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https://alephblog.com/2020/12/10/estimating-future-stock-returns-september-2020-update/
"...the level of the S&P 500 now is priced to return 1.79%/yr for the next ten years, with no adjustment for inflation. That’s in the 97th percentile of valuations."
Really not a good idea to be all-in here. People who like to trot out standard mantra they invest for the long term and don't worry about the short term are, by their own actions, doing just the opposite.
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The other day my mom asked me about investing in Bitcoin and Telsa knowing that I had put some of my side money into those investments. When was the last time she asked me about Bitcoin? 2017.
Also, a personal sign that a bubble is about to burst is at the end of a republican administration. In my lifetime this has been a pretty good indicator of a recession (Bush I, Bush II and now Trump).
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It would hilarious/ironic if bitcoin ended up correlated with the S&P 500.
-W
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Also, a personal sign that a bubble is about to burst is at the end of a republican administration. In my lifetime this has been a pretty good indicator of a recession (Bush I, Bush II and now Trump).
I'm confused. The bubble of all bubbles was the .com bubble which is generally considered to have start inflating in 1995 and having popped in 2000.
(https://upload.wikimedia.org/wikipedia/commons/thumb/8/84/Nasdaq_Composite_dot-com_bubble.svg/1920px-Nasdaq_Composite_dot-com_bubble.svg.png)
Further reading (https://en.wikipedia.org/wiki/Dot-com_bubble).
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It would hilarious/ironic if bitcoin ended up correlated with the S&P 500.
-W
The correlation between the annual price change in bitcoin and the annual return of the S&P 500 over the past seven years is R^2 = 0.161 (give or take). Which ain't nothin'
It'd be interesting to go month by month instead of year by year, but I couldn't find an easy place to copy and paste the data from and not feel motivated enough to calculate and paste them in by hand.
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Interesting Article about recessions and party line:
https://www.usatoday.com/story/news/factcheck/2020/05/28/fact-check-do-gop-presidents-oversee-recessions-dems-recoveries/5235957002/
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It would hilarious/ironic if bitcoin ended up correlated with the S&P 500.
-W
BTC and stocks are becoming increasingly positively correlated, as both are risk-on assets with the same speculators pushing both higher.
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It would hilarious/ironic if bitcoin ended up correlated with the S&P 500.
-W
BTC and stocks are becoming increasingly positively correlated, as both are risk-on assets with the same speculators pushing both higher.
Maybe yes, maybe no. Maybe the SP-500 is going up because of the Fed Put and BTC is going up as a currency hedge because the Fed Put devalues the dollar.
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Maybe yes, maybe no. Maybe the SP-500 is going up because of the Fed Put and BTC is going up as a currency hedge because the Fed Put devalues the dollar.
Given the lack of financial sophistication on the part of the folks I personally know who are big bitcoin people (and the grandma/bus driver/college kid living at home BTC-investor anecdotes), I'd guess that the "both are being driven by speculators" theory is more likely.
I mean, there are certainly some people who are in BTC (or gold if not hip enough) because they're worried about the dollar/stock market crash/etc. But those people were already all-in on that stuff 5 years ago. The new money in EVERYTHING is speculators/cash with nowhere else to go.
We have debated WTF to do with the next round of helicopter cash here. I imagine we'll mostly donate it. But a lot of people are going to run out and buy stocks/BTC/gold.
-W
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If the everything bubble expanded to cover even these, so that there was no reasonable earnings yield or interest to be earned anywhere in the world, the option value of holding cash would exceed the benefits of equities or bonds.
Maybe to you. I'd still rather buy productive assets that try to go up in value than an asset that tries to go down in value.
The thing is, productive assets don't always go up in value when they are overpriced. At some level of overpriced-ness, the odds of the price continuing to rise are less than the odds of the price falling. If that were not true, any asset would be a good deal at any price, e.g. my car for $200,000.
The option value of cash represents the opportunity value to buy into assets in the future when prices are lower than they are now. It is offset by the opportunity cost of missing any gains in the value of the assets. E.g. in early 2000 and 2008, the option value of cash proved to be greater than the opportunity cost of the shares one could have traded the cash for.
The question in this thread is how to tell when the odds of an increase are less than the odds of a decrease. This is, of course, a question fraught with danger because many of the fundamental metrics have been screaming "bubble" since about 100% ago, as noted by someone on this forum who keeps a growing list of "top is in" prognostications. Perhaps instead of asking for a "bubble indicator" that indicates when to convert shares/bonds to cash, we should ask for a "hedging indicator" to let us know when we've entered a potentially multi-year period of prices so high that hedges are suggested.
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The option value of cash represents the opportunity value to buy into assets in the future when prices are lower than they are now. It is offset by the opportunity cost of missing any gains in the value of the assets. E.g. in early 2000 and 2008, the option value of cash proved to be greater than the opportunity cost of the shares one could have traded the cash for.
I don't fundamentally disagree with this framing, but the second cost of remaining in cash is the potential for losses if inflation rises, which will further drive the cost of assets in nominal dollars.
The key point here being that there is a scenario where a person could be completely correct about assets being valued quite highly, limiting the potential for short to medium term real returns, and even correctly forecast a decline in real asset prices in the future, and still end up worse off for having sat in cash if the decline in real asset prices occurs via inflation rather than a decline in nominal asset prices.
The question in this thread is how to tell when the odds of an increase are less than the odds of a decrease. This is, of course, a question fraught with danger because many of the fundamental metrics have been screaming "bubble" since about 100% ago, as noted by someone on this forum who keeps a growing list of "top is in" prognostications. Perhaps instead of asking for a "bubble indicator" that indicates when to convert shares/bonds to cash, we should ask for a "hedging indicator" to let us know when we've entered a potentially multi-year period of prices so high that hedges are suggested.
That's @RWD. It's a really impressive list at this point.
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Maybe yes, maybe no. Maybe the SP-500 is going up because of the Fed Put and BTC is going up as a currency hedge because the Fed Put devalues the dollar.
Given the lack of financial sophistication on the part of the folks I personally know who are big bitcoin people (and the grandma/bus driver/college kid living at home BTC-investor anecdotes), I'd guess that the "both are being driven by speculators" theory is more likely.
Maybe, by the time it is on Marketplace Morning Report (https://www.marketplace.org/shows/marketplace-morning-report/uk-contagious-coronavirus-lockdown-travel-bans-indonesia-vaccine-rollout/) (skip to 5:25) it seems pretty well in the public consciousness. But you are correct that it is the well informed public and maybe not the Robinhood crowd.
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The question in this thread is how to tell when the odds of an increase are less than the odds of a decrease. This is, of course, a question fraught with danger because many of the fundamental metrics have been screaming "bubble" since about 100% ago, as noted by someone on this forum who keeps a growing list of "top is in" prognostications. Perhaps instead of asking for a "bubble indicator" that indicates when to convert shares/bonds to cash, we should ask for a "hedging indicator" to let us know when we've entered a potentially multi-year period of prices so high that hedges are suggested.
That's @RWD. It's a really impressive list at this point.
Thanks. I believe the list now contains 44 threads over an 8 year period. Slightly less than one thread every other month on average. Though the frequency has increased over time (less than 1.5 months between threads since 2018) due (partly, at least) to increased traffic on the forums.
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The question in this thread is how to tell when the odds of an increase are less than the odds of a decrease. This is, of course, a question fraught with danger because many of the fundamental metrics have been screaming "bubble" since about 100% ago, as noted by someone on this forum who keeps a growing list of "top is in" prognostications. Perhaps instead of asking for a "bubble indicator" that indicates when to convert shares/bonds to cash, we should ask for a "hedging indicator" to let us know when we've entered a potentially multi-year period of prices so high that hedges are suggested.
That's @RWD. It's a really impressive list at this point.
Thanks. I believe the list now contains 44 threads over an 8 year period. Slightly less than one thread every other month on average. Though the frequency has increased over time (less than 1.5 months between threads since 2018) due (partly, at least) to increased traffic on the forums.
Might frequency of TOP IS IN type posts be a new bubble indicator? Ha....
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The question in this thread is how to tell when the odds of an increase are less than the odds of a decrease. This is, of course, a question fraught with danger because many of the fundamental metrics have been screaming "bubble" since about 100% ago, as noted by someone on this forum who keeps a growing list of "top is in" prognostications. Perhaps instead of asking for a "bubble indicator" that indicates when to convert shares/bonds to cash, we should ask for a "hedging indicator" to let us know when we've entered a potentially multi-year period of prices so high that hedges are suggested.
That's @RWD. It's a really impressive list at this point.
Thanks. I believe the list now contains 44 threads over an 8 year period. Slightly less than one thread every other month on average. Though the frequency has increased over time (less than 1.5 months between threads since 2018) due (partly, at least) to increased traffic on the forums.
Might frequency of TOP IS IN type posts be a new bubble indicator? Ha....
Frequency of people proclaiming a bubble should be inversely related to the chance of a bubble actually forming.
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Maybe yes, maybe no. Maybe the SP-500 is going up because of the Fed Put and BTC is going up as a currency hedge because the Fed Put devalues the dollar.
Given the lack of financial sophistication on the part of the folks I personally know who are big bitcoin people (and the grandma/bus driver/college kid living at home BTC-investor anecdotes), I'd guess that the "both are being driven by speculators" theory is more likely.
Maybe, by the time it is on Marketplace Morning Report (https://www.marketplace.org/shows/marketplace-morning-report/uk-contagious-coronavirus-lockdown-travel-bans-indonesia-vaccine-rollout/) (skip to 5:25) it seems pretty well in the public consciousness. But you are correct that it is the well informed public and maybe not the Robinhood crowd.
Seems like every time Bitcoin makes it into the news a crash is near. For a while I've been interested in taking a small stake in crypto as a high volatility, lower correlation component of my portfolio so I look forward to being able to buy in for cheap soon!
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As I think I said earlier on this thread, my "bubble indicator" is when the news starts to veer toward technical analysis themes: numbers, indexes, trends, etc.; and away from fundamentals, earnings reports, and plans.
I literally read on Quora someone explaining that after Tesla's stock split reduced the price, it would slowly find its way back to the "natural" price it had before. The fact that such ideas seem reasonable to people is a good indicator to me to get the hell away.
FWIW, my financial advisor is moving me from 80/20 stocks/bonds to 65/35 for at least the next six months. So he think's something's up, but not the end of the world.
So if things keep going up, I'm still mostly in the game, but on the other hand, it sure feels good to be selling right now.
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Elon Musk now the richest man in the world...
Just need Time Magazine to slap him on the cover and ceremonially declare him person of the decade and my checklist will be complete
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>What are your bubble indicators?
Thanks for motivating the question.
For me (joe blow here, not a pro), watching in my lifetime, the question to ascertain this would be:
Is there large scale lack of money coming to the table to address the market size in the asset class that has bubbled (grown upon itself in size, self-feeding) ?
First of all, you have to be comfortable with this above arguably limited definition of mine for a bubble. The prices in the asset class can go down for different reasons other than this above.
Living through 2000 tech bubble, I recall the peak took place over about 6-8 weeks. An easy indicator of lack of money coming to the table on the large scale to address the market size that had bubbled was IPOs that were scheduled were paused or canceled during this peak period.
The 2008 real estate mortgage crises was a little tougher to see for me, not working or paying attention to the banking or real estate sector, but reading a bit, looking in hindsight, banks were getting hesitant to lend to one another as defaults were rising -- the key here being lack of big $ willing to support the assets. Defaults on the residential market were already two-fifths through the upswing when Lehman failed at the end of Q3 2008 and things snowballed from there, propagating to other asset class declines.
https://fred.stlouisfed.org/series/DRSFRMACBS
So, here again it was moreso the lack of institutions applying new money to the asset class that tipped things. But again, it is seeable if watching, because the tipping point wasn't happening at the mom and pop level, rather whether big bank-to-bank lending was continuing or stopping.
In view of this, what to look out for now would be what is happening in commercial real estate? It could be a problem, virus causing lack of commercial occupancy, but the sector issue probably does not constitute a bubble (grown upon itself in size, self-feeding).
These are the two main crashes in my lifetime I can comprehend first hand. The crash of '87 (easily recovered technical correction--it is my lifetime, but I'm not counting that).
Does this apply to events outside of my lifetime; tulips (maybe oversupply to demand on something without intrinsic value) or 1929 (maybe, leveraged run up--looking for calls on margin might be too late an indicator) , I don't know.
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Probably TSLA being worth more than Berkshire Hathaway, Walmart, or Facebook.
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I was joking with a group of friends on a text thread. Hookers and blow, that sort of stuff. I said just throw it all into ETHE.
One of my friends took me seriously and came back 4 days later to thank me for the stock tip that made him $11,000.
To earn that money, he had to trade a significant percentage of his new worth - based on a text message joke - about the riskiest thing to do with one's money.
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I was joking with a group of friends on a text thread. Hookers and blow, that sort of stuff. I said just throw it all into ETHE.
One of my friends took me seriously and came back 4 days later to thank me for the stock tip that made him $11,000.
To earn that money, he had to trade a significant percentage of his new worth - based on a text message joke - about the riskiest thing to do with one's money,
NOW he can spend the winnings on even more hookers and blow. Sound financial move. /s
Next time you can steer him to Bananas and Blow - https://www.youtube.com/watch?v=6Gd87JmkAkE - Ween
Alternatively Fat Girls and Weed https://www.youtube.com/watch?v=tikRI34QrQw -- Ragged Rail
Haven't seen the original artists do those songs, but I have seen Tom Gnoza, RIP, age 49, do these many times.
https://www.youtube.com/watch?v=w-xCcf-GTf8 -- not completely autobiographical, but close.
I miss you sometimes, Tom.
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Probably TSLA being worth more than Berkshire Hathaway, Walmart, or Facebook.
I was pondering that the early stages of a new bull market is characterised by the general public being excited by the product of a company while ignorant of its stock. In the latter stages of a bubble the general public are ignorant of the product of a company while being excited by its stock.
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Probably TSLA being worth more than Berkshire Hathaway, Walmart, or Facebook.
I was pondering that the early stages of a new bull market is characterised by the general public being excited by the product of a company while ignorant of its stock. In the latter stages of a bubble the general public are ignorant of the product of a company while being excited by its stock.
And the record levels of IPOs in 2020 and countles spacs with countless more blank check entities created to do more spacs, all of which don't make money and some don't even have products yet - sure seems bubble like to me.
As for TSLA, I am sorry but it was difficult to value a year ago so there is no f'ing way that anyone can argue its value with sincerity today, don't get me wrong I know there are plenty that are and will - its green innovation, tech company not an auto company, solar, batteries, blah blah blah blah. For it to have even an absurdly high valuation in reasonable times (40x pe) its earnings would be $21billion per year - not far where it is currently hahaha
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I think it's best to not have a bubble indicator.
Is it for the same reason as waltworks above: "I personally don't think you ever really can recognize a bubble without the benefit of hindsight."? Or do you have some other point of view?
Asking because I want to educate myself on all the possible ways to think about it.
I have to work hard to control my trigger finder itch to market time - bad habits from when I first started trading (and called it "investing"). Learning to think from as many angles as possible helps assuage that. I call it "intentional analysis paralysis".
There were tons of people who go out before the Nasdaq bust in 1999-2000, and hoards of people who auctioned away their coastal properties to breathless, desperate trend chasers in 2006-2007. There comes a point where the rationale for a positive return is something like "all these dot com companies will each, individually, dominate the planet in 5 years" or "middle-class houses in this place will cost $10 million 10 years from now and middle class people will pay those prices."
So it is possible. The indicator is the lack of any reasonable rationale to support the case that an asset will outperform competing investments. E.g. treasuries outperformed most tech stocks such as Cisco, Microsoft, and Yahoo purchased in 2000 for the next 15 years.
To both catch a bubble's upside and also sell before the burst, one would have to take a trend-following approach to get in early on, and then switch to a rational/analytical approach which would lead one to bail out. Thus, there is a timing component - not so much in the trading but in the change of mentality. Additionally, that switch would have to occur at exactly the time the status quo mentality seemed to be working beautifully. Good luck with that game.
If you are a technical analysis trend follower, the TA would both get you in the trend and get you out of the trend before it drops 80% like previous bubbles. You still may give up 25-40% of your profits in the end, but you’ll have kept most of them.
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Probably TSLA being worth more than Berkshire Hathaway, Walmart, or Facebook.
I was pondering that the early stages of a new bull market is characterised by the general public being excited by the product of a company while ignorant of its stock. In the latter stages of a bubble the general public are ignorant of the product of a company while being excited by its stock.
And the record levels of IPOs in 2020 and countles spacs with countless more blank check entities created to do more spacs, all of which don't make money and some don't even have products yet - sure seems bubble like to me.
As for TSLA, I am sorry but it was difficult to value a year ago so there is no f'ing way that anyone can argue its value with sincerity today, don't get me wrong I know there are plenty that are and will - its green innovation, tech company not an auto company, solar, batteries, blah blah blah blah. For it to have even an absurdly high valuation in reasonable times (40x pe) its earnings would be $21billion per year - not far where it is currently hahaha
As for the SPACs, you should listen to some of the people managing them. While some are probably doing it just for the easy money in fees, others at least ‘claim’ that they are doing SPACs so that the general public can get access to investing in early stage companies. Rather than getting them once their growth has slowed and insiders are just trying to cash out.
In an early stage company, you don’t want them to be profitable. You want them to be growing so fast that they would be stupid not to be investing every dollar they have (along with taking on debt and outside investment) to grow and take over their market as quickly as possible. You are buying a promise of future profits some day down the road.
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Probably TSLA being worth more than Berkshire Hathaway, Walmart, or Facebook.
I was pondering that the early stages of a new bull market is characterised by the general public being excited by the product of a company while ignorant of its stock. In the latter stages of a bubble the general public are ignorant of the product of a company while being excited by its stock.
And the record levels of IPOs in 2020 and countles spacs with countless more blank check entities created to do more spacs, all of which don't make money and some don't even have products yet - sure seems bubble like to me.
As for TSLA, I am sorry but it was difficult to value a year ago so there is no f'ing way that anyone can argue its value with sincerity today, don't get me wrong I know there are plenty that are and will - its green innovation, tech company not an auto company, solar, batteries, blah blah blah blah. For it to have even an absurdly high valuation in reasonable times (40x pe) its earnings would be $21billion per year - not far where it is currently hahaha
As for the SPACs, you should listen to some of the people managing them. While some are probably doing it just for the easy money in fees, others at least ‘claim’ that they are doing SPACs so that the general public can get access to investing in early stage companies. Rather than getting them once their growth has slowed and insiders are just trying to cash out.
In an early stage company, you don’t want them to be profitable. You want them to be growing so fast that they would be stupid not to be investing every dollar they have (along with taking on debt and outside investment) to grow and take over their market as quickly as possible. You are buying a promise of future profits some day down the road.
Sure, I heard it too democratization of the IPO for smaller companies, they are so altruistic - NOT AT ALL. Its 100% easy money in an easy environment. I do appreciate the access argument for the average investor, but one of the things that make early stage companies successful (besides reinvesting all cash) is discipline of said cash and founders/early personnel to get a big pay day at some point. Angel and PE investors usually provide that discipline and motivation through varies raises - hit your marks, get more cash, hit your next mark, get more cash.
If the cash is front loaded and the founders/early personnel are suddenly rich the discipline and motivation drivers go out the window. So I don't buy it.
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...
Well, I'm 99% VT which includes both REITs and foreign equities. I said equities, I never said US non-REIT equities.
I can save you about 0.03% of expense ratio: split VT into VTI and VXUS.
Investing equally in VTI and VXUS gives a combined 0.055% expense ratio, or if you use current weights (57% VTI, 43% VXUS) you get a 0.0515% expense ratio. Both of which improve on VT's 0.08% expense ratio, with the same holdings from the same company - all are Vanguard ETFs.
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Special Purpose Acquisition Companies (SPACs) could be making up for the lack of IPOs in 2020, but were already big in 2019. Wikipedia's stats show a 30% increase from 2019 to 2020. The numbers don't seem like bubble territory.
EDIT: I accidentally compared 2018 and 2019, when there was a 1.3x increase. In 2020, there was a 6.4x increase. Thanks to tooqk4u22's correction, I agree it could be bubble territory.
One of the many things I don't get about SPACs is why they accept $10/share, and then watch their stock rise much higher in the public market. If it's clear every SPAC should be paying $12/share or more, why do companies keep accepting $10/share to hand over their stock?
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...
Well, I'm 99% VT which includes both REITs and foreign equities. I said equities, I never said US non-REIT equities.
I can save you about 0.03% of expense ratio: split VT into VTI and VXUS.
Investing equally in VTI and VXUS gives a combined 0.055% expense ratio, or if you use current weights (57% VTI, 43% VXUS) you get a 0.0515% expense ratio. Both of which improve on VT's 0.08% expense ratio, with the same holdings from the same company - all are Vanguard ETFs.
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Special Purpose Acquisition Companies (SPACs) could be making up for the lack of IPOs in 2020, but were already big in 2019. Wikipedia's stats show a 30% increase from 2019 to 2020. The numbers don't seem like bubble territory.
One of the many things I don't get about SPACs is why they accept $10/share, and then watch their stock rise much higher in the public market. If it's clear every SPAC should be paying $12/share or more, why do companies keep accepting $10/share to hand over their stock?
Lack of IPOs in 2020, there were 218 raising $78Bil both are more than any year since 2014 that had 275 and $85bil. So no there wasn't a shortage.
And there were 248 SPAC offerings in 2020 raising $83 bil vs. 59 in 2019 raising $13.6bil. https://spacinsider.com/stats/ (https://spacinsider.com/stats/)
So yeah, a big year and kinda bubble like IMO.
Don't know for sure but I suspect the SPACs done in 2019 had better underwriting.
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tooqk4u22 - Thank you, I was wrong. I looked at $10B followed by $13B and thought that was a small increase... because I accidentally compared 2018 to 2019. Given your data of $83B vs $13B, I'd agree that's extreme for 2020. SPACs typically have to find a company to take public, or liquidate within 2 years. So I guess that makes 2022 an interesting year for SPACs?
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Investco QQQ (representing Nasdaq) gained +39% in 2019 and +49% in 2020 according to morningstar.
https://www.morningstar.com/etfs/xnas/qqq/performance
Those seem like rather high returns that are unlikely to continue. So I'd expect returns to be lower in 2021, but I don't know by how much. It seems logical that companies like Amazon had more business during a lockdown, and certainly moviegoers had to settle for Netflix over actually seeing a movie. Although a percentage of new customers will probably keep using online services, I think enough will depart to leave a mark on expected revenues.
I guess for me, it might make sense to sell QQQ and tech investments now, before things reopen. Not necessarily a bubble, but unlikely to continue the +39%/+49% trend of the past 2 years.
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Too bad SIGL doesn't have a put options market.
https://markets.businessinsider.com/news/stocks/signal-advance-stock-price-surge-elon-musk-tweet-privacy-app-2021-1-1029956384 (https://markets.businessinsider.com/news/stocks/signal-advance-stock-price-surge-elon-musk-tweet-privacy-app-2021-1-1029956384)
No remaining doubt about the "dumb money".
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Reminds me of the Long Island Iced Tea Corp/Long Blockchain Corp story from three years ago.
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Too bad SIGL doesn't have a put options market.
https://markets.businessinsider.com/news/stocks/signal-advance-stock-price-surge-elon-musk-tweet-privacy-app-2021-1-1029956384 (https://markets.businessinsider.com/news/stocks/signal-advance-stock-price-surge-elon-musk-tweet-privacy-app-2021-1-1029956384)
No remaining doubt about the "dumb money".
And the dumbest part is that once it came out that it was unrelated to Musk's tweet the stock still closed up 5x from where it did on Friday. WTF is going on!
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Probably TSLA being worth more than Berkshire Hathaway, Walmart, or Facebook.
I was pondering that the early stages of a new bull market is characterised by the general public being excited by the product of a company while ignorant of its stock. In the latter stages of a bubble the general public are ignorant of the product of a company while being excited by its stock.
And the record levels of IPOs in 2020 and countles spacs with countless more blank check entities created to do more spacs, all of which don't make money and some don't even have products yet - sure seems bubble like to me.
As for TSLA, I am sorry but it was difficult to value a year ago so there is no f'ing way that anyone can argue its value with sincerity today, don't get me wrong I know there are plenty that are and will - its green innovation, tech company not an auto company, solar, batteries, blah blah blah blah. For it to have even an absurdly high valuation in reasonable times (40x pe) its earnings would be $21billion per year - not far where it is currently hahaha
As for the SPACs, you should listen to some of the people managing them. While some are probably doing it just for the easy money in fees, others at least ‘claim’ that they are doing SPACs so that the general public can get access to investing in early stage companies. Rather than getting them once their growth has slowed and insiders are just trying to cash out.
In an early stage company, you don’t want them to be profitable. You want them to be growing so fast that they would be stupid not to be investing every dollar they have (along with taking on debt and outside investment) to grow and take over their market as quickly as possible. You are buying a promise of future profits some day down the road.
Sure, I heard it too democratization of the IPO for smaller companies, they are so altruistic - NOT AT ALL. Its 100% easy money in an easy environment. I do appreciate the access argument for the average investor, but one of the things that make early stage companies successful (besides reinvesting all cash) is discipline of said cash and founders/early personnel to get a big pay day at some point. Angel and PE investors usually provide that discipline and motivation through varies raises - hit your marks, get more cash, hit your next mark, get more cash.
If the cash is front loaded and the founders/early personnel are suddenly rich the discipline and motivation drivers go out the window. So I don't buy it.
Discipline and motivation may go out the window for me (somebody hands me millions of dollars, you can bet I ain't working 60 hours a week again), but the kind of personality who starts and runs a fast growing company are overachievers. They want to take over the world. Having money isn't enough, total world domination is the only thing that satisfies their lust.
Amazon has been on top of the world for years now, but Bezos doesn't care. He hasn't taken over the entire world yet, so he still drives everyone like they are a startup. That's the kind of person to invest your money with, and the kind of people who run most of the successful companies out there.
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...
Well, I'm 99% VT which includes both REITs and foreign equities. I said equities, I never said US non-REIT equities.
I can save you about 0.03% of expense ratio: split VT into VTI and VXUS.
Investing equally in VTI and VXUS gives a combined 0.055% expense ratio, or if you use current weights (57% VTI, 43% VXUS) you get a 0.0515% expense ratio. Both of which improve on VT's 0.08% expense ratio, with the same holdings from the same company - all are Vanguard ETFs.
---
Special Purpose Acquisition Companies (SPACs) could be making up for the lack of IPOs in 2020, but were already big in 2019. Wikipedia's stats show a 30% increase from 2019 to 2020. The numbers don't seem like bubble territory.
One of the many things I don't get about SPACs is why they accept $10/share, and then watch their stock rise much higher in the public market. If it's clear every SPAC should be paying $12/share or more, why do companies keep accepting $10/share to hand over their stock?
Lack of IPOs in 2020, there were 218 raising $78Bil both are more than any year since 2014 that had 275 and $85bil. So no there wasn't a shortage.
And there were 248 SPAC offerings in 2020 raising $83 bil vs. 59 in 2019 raising $13.6bil. https://spacinsider.com/stats/ (https://spacinsider.com/stats/)
So yeah, a big year and kinda bubble like IMO.
Don't know for sure but I suspect the SPACs done in 2019 had better underwriting.
So here we are well into the year (21 days) and already up to 59 SPACs (total # done in 2019). Sure, no bubble here, nothing to see here, move along.
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That quote misses a correction I made to the original post, so I'll repost here:
Special Purpose Acquisition Companies (SPACs) could be making up for the lack of IPOs in 2020, but were already big in 2019. Wikipedia's stats show a 30% increase from 2019 to 2020. The numbers don't seem like bubble territory.
EDIT: I accidentally compared 2018 and 2019, when there was a 1.3x increase. In 2020, there was a 6.4x increase. Thanks to tooqk4u22's correction, I agree it could be bubble territory.
Another point about SPACs: the success / failure results are skewed by the time frame. SPACs can succeed in months, but failures take 2 years to show up. That makes 2020 SPACs look successful, because all of the failed attempts have until some time in 2022 before they declare failure and liquidate.
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What made me look for a thread exactly like this is two things that happened this past week.
1) My girlfriend's friend sent her an invitation to join Robinhood because if she refers enough people she gets 1 free "stock". This girl has a young child and doesnt make a lot of money and always tries to drag my girlfriend to ridiculous birthday celebrations such as VIP table with bottle service at clubs or trips to the Dominican Republic.
2) A coworker was lamenting to me and someone else separately that today was a bad day because his TLSA stock dropped a couple points that particular day. Later that day he told me he leases a new truck every SIX to TWELVE MONTHS because he "needs change". My brain was about to implode trying to comprehend this.
Now I dont want to come off like a snob, I'm pretty new to investing (3 years) and I passively buy and hold index funds and am currently debt free. I've tried in the past to convince people to take finances serious and get into the FIRE movement but NOBODY is ever interested. So when I hear these types of people talk about trendy stocks or get interested in stocks it makes me wonder if these are the signs I've always heard about.
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1) My girlfriend's friend sent her an invitation to join Robinhood because if she refers enough people she gets 1 free "stock". This girl has a young child and doesnt make a lot of money and always tries to drag my girlfriend to ridiculous birthday celebrations such as VIP table with bottle service at clubs or trips to the Dominican Republic.
I remember Robinhood used to run an ad about this on a number of podcasts I listen to. I think the options were one share of Sprint, Ford, and Apple when Sprint and Ford were around $5/share and Apple was around $500 (pre-split).* Remember thinking at the time it was striking they'd found a way to turn a regular referral bonus program into "intermittent reinforcement" (essentially gambling) which is tends to produce much bigger changes in people's behavior than a predictable and constant reward.
*It was a long time ago so I could be remembering the companies or share prices wrong.
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S&P 500 will be at 6000 by the end of the year.
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[/quote]
I remember Robinhood used to run an ad about this on a number of podcasts I listen to. I think the options were one share of Sprint, Ford, and Apple when Sprint and Ford were around $5/share and Apple was around $500 (pre-split).* Remember thinking at the time it was striking they'd found a way to turn a regular referral bonus program into "intermittent reinforcement" (essentially gambling) which is tends to produce much bigger changes in people's behavior than a predictable and constant reward.
*It was a long time ago so I could be remembering the companies or share prices wrong.
[/quote]
I havent used it but I've heard that Robinhood's interface is set up to be almost game or gambling like to keep people hooked. What you just said seems to further reinforce this
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As @mistymoney pointed out it Please teach me about TSLA (https://forum.mrmoneymustache.com/investor-alley/please-teach-me-about-tsla/), Chamath Palihapitiya told CNBC on Thursday that Tesla's stock could be worth three times its current valuation, which would make CEO Elon Musk the first trillionaire. - https://markets.businessinsider.com/news/stocks/chamath-palihapitiya-tesla-stock-price-target-elon-musk-net-worth-2021-1-1029941932
Tripling TSLA and leaving the rest of the market where it is would give Tesla the highest market cap on the planet. That's my new bubble indicator.
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Not sure how to categorize this, but it sure feels like a bubble indicator:
AMEX offers has a 100% cashback offer on Motley Fool membership.
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As @mistymoney pointed out it Please teach me about TSLA (https://forum.mrmoneymustache.com/investor-alley/please-teach-me-about-tsla/), Chamath Palihapitiya told CNBC on Thursday that Tesla's stock could be worth three times its current valuation, which would make CEO Elon Musk the first trillionaire. - https://markets.businessinsider.com/news/stocks/chamath-palihapitiya-tesla-stock-price-target-elon-musk-net-worth-2021-1-1029941932
Tripling TSLA and leaving the rest of the market where it is would give Tesla the highest market cap on the planet. That's my new bubble indicator.
I find it quite offensive that he tries to label his firm as Berkshire Hathaway 2.0. The couldn't be more different.
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I'm starting to think that the bubble we're in is about to pop. And, of course, I will do nothing but stay the course. But here's what I'm thinking. I think in the future it will be coined the "Retail investor bubble". My theory is that the Gamestop shenanigans has made enough national media for most investors to see it and think "that ain't right", Gamestop will be the story everyone tells like the Pets.com / Enron of .com bubble. Watching this unfold has made me realize personally, also why Tesla is where it is right now... it's the retail traders propping it up to levels it should not be. This was probably obvious to many of the posters here who know a lot more than I do about investing, but when it's obvious to the layman (as you can tell by how I am describing my position) it the indicator that we are in for a correction. I might be wrong, but I'm so confident... I might just rebalance :).
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I found out today that a group of friends are trading options on robinhood. These guys have absolutely no insight to what they are doing, they just buy whatever option on whatever stock they can afford. Start with $100, if it works and you make $300, roll it into the next option. Rinse and repeat until you lose everything or retire. Is this the new normal? Seems frothy to me, damn.
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So here we are well into the year (21 days) and already up to 59 SPACs (total # done in 2019). Sure, no bubble here, nothing to see here, move along.
I take it back, SPACs are not a bubble indicator, bc the master of all investments formed one.....wait for it........COLIN KAEPERNICK! That guy has been an investing genius for decades, Am I right?
WTF is going on!
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"TSLA BUYS BITCOIN" is as clear an indicator to me that we are now at full blown "this shit is gonna hurt on the way down" stage.
Back in the late 1980s Japanese companies would routinely buy the common stock of other Japanese companies. The thinking was that, because they would never sell their holdings, the supply would be increasingly restricted and so the high prices would be permanently sustained... yeah, it didn't turn out so well.
This, similarly, will end very badly.
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...
Well, I'm 99% VT which includes both REITs and foreign equities. I said equities, I never said US non-REIT equities.
I can save you about 0.03% of expense ratio: split VT into VTI and VXUS.
Investing equally in VTI and VXUS gives a combined 0.055% expense ratio, or if you use current weights (57% VTI, 43% VXUS) you get a 0.0515% expense ratio. Both of which improve on VT's 0.08% expense ratio, with the same holdings from the same company - all are Vanguard ETFs.
---
Special Purpose Acquisition Companies (SPACs) could be making up for the lack of IPOs in 2020, but were already big in 2019. Wikipedia's stats show a 30% increase from 2019 to 2020. The numbers don't seem like bubble territory.
One of the many things I don't get about SPACs is why they accept $10/share, and then watch their stock rise much higher in the public market. If it's clear every SPAC should be paying $12/share or more, why do companies keep accepting $10/share to hand over their stock?
Lack of IPOs in 2020, there were 218 raising $78Bil both are more than any year since 2014 that had 275 and $85bil. So no there wasn't a shortage.
And there were 248 SPAC offerings in 2020 raising $83 bil vs. 59 in 2019 raising $13.6bil. https://spacinsider.com/stats/ (https://spacinsider.com/stats/)
So yeah, a big year and kinda bubble like IMO.
Don't know for sure but I suspect the SPACs done in 2019 had better underwriting.
Do these IPO numbers not include SPAC Ipos? Because SPACs are IPOing like crazy... then later buying companies that might have IPOd and merging them public.... so if the SPAC IPOs are not included that seems a bit disinengous of the data source. SPACs would be shifting early the timing of when IPOs hit the market. sort of.
I think 10 SPACs IPOd yesterday? so yeah agree a bubble is forming.
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I take it back, SPACs are not a bubble indicator, bc the master of all investments formed one.....wait for it........COLIN KAEPERNICK! That guy has been an investing genius for decades, Am I right?
In the past, events like that have been indicators of peak mania.
https://markets.businessinsider.com/news/stocks/colin-kaepernick-spac-blank-check-company-social-purpose-mission-advancement-2021-2-1030065429
I thought in 2020 IPOs and SPACs attracted similar levels of investment dollars? But it looks like it's headed towards excess.
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Maybe I should start a SPAC and short the market with it.
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I don't know what a SPAC is, but I want in.
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I don't know what a SPAC is, but I want in.
I listened to this podcast about a month and a half ago:
https://www.npr.org/2021/01/12/956169423/the-spac-is-back
Never heard of them before this.
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I don't know what a SPAC is, but I want in.
I listened to this podcast about a month and a half ago:
https://www.npr.org/2021/01/12/956169423/the-spac-is-back
Never heard of them before this.
My dog should have one ready in a week or so - RPG 1 Poo Poo 4U. You all can buy in early! It will be awesome.
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My dog should have one ready in a week or so - RPG 1 Poo Poo 4U. You all can buy in early! It will be awesome.
I can't wait for the distributions.
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Garden variety SPACs are so last year. 2021 is the year of the SCALEs.
We are pioneering a new structure called SCALE, or Stakeholder-Centered Aligned Listed Equity, where returns for the sponsor are primarily dependent on the stock price performance of the company with which we enter into a business combination. Traditionally, sponsors of blank check companies purchase 20% of the issued stock at a nominal price that is awarded to the sponsor regardless of performance, and solely on the ability to close an initial business combination. Instead, in NightDragon Acquisition Corp.’s SCALE structure, our sponsor will earn its promote based on the occurrence of certain triggering events
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Does Colin Kaepernick getting into SPACs count (https://www.thestreet.com/investing/colin-kaepernick-spac-wall-street)?
I have nothing against Kaepernick, and I fully support his social justice work, but this would seem to be a little bit out of his wheelhouse?
EDIT: whoops, you folks already had this
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Someone just told me Dogecoin is going to $1 so I should get in now before it goes higher.
Something tells me Tesla, crypto, and pot stocks are all the same frothy investment thesis.
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Someone just told me Dogecoin is going to $1 so I should get in now before it goes higher.
Something tells me Tesla, crypto, and pot stocks are all the same frothy investment thesis.
Buy investments high, get high gains. It makes sense - worked in college.
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Can't go wrong. Combo it with mrmoneymustache's new margin loan strategy to amplify your gains.
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I think that my new favorite is: nonfungible tokens (https://www.coindesk.com/mark-cuban-bitcoin-nfts-blockchain-dallas-mavericks).
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Can't go wrong. Combo it with mrmoneymustache's new margin loan strategy to amplify your gains.
Supercharge it by taking your 25% margin to a new broker and get another 25% margin which you take to a new broker and get another 25%. Few accounts later and you have close to 50% margin with only 25% exposure.
Or Refi your house to buy stock then get a margin loan and use it as a down payment on rentals.
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Can't go wrong. Combo it with mrmoneymustache's new margin loan strategy to amplify your gains.
Supercharge it by taking your 25% margin to a new broker and get another 25% margin which you take to a new broker and get another 25%. Few accounts later and you have close to 50% margin with only 25% exposure.
Or Refi your house to buy stock then get a margin loan and use it as a down payment on rentals.
Obviously. I thought that went without saying. Fractional reserve margin crypto investing.
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It's like I find a new one every day:
'There's never been a time like this': Wall Street is piling into trading cards as prices soar (https://www.cnn.com/2021/02/12/investing/baseball-cards-markets/index.html)
Talk about an everything bubble.
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Ok yeah, the sports cards thing is just terrifying. I feel like I need to start one of those "I'm not a market timer but..." threads.
Maybe I can get the jump on the hedge fund guys on the remaining Ty Beanie Babies... hell, those might actually be rare by now!
-W
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And I gave away my entire stash of 90's baseball cards about 2 months ago. Missed it. Even had some super rare WWE (WWF?) cards <- DW: "WHY DO YOU HAVE GAY PORN CARDS!?" she did not know what WWF was.
Edit: moved 10% of my net worth to cash / bonds today. now 80/20 instead of 90/10. Traded a VTSAX equivalent. Couldn't handle the pressure.
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I might have to buy one share of the "Shaq SPAC", just for the name. It turns out celebrity SPACs have decided to leave other bubble indicators in the dust. Besides Shaq, there's 3 other sports figures and a singer joining SPACs:
https://finance.yahoo.com/news/5-celebrity-spacs-consider-shaq-222007933.html
Then there's sports team owners and politicians adding their name to SPACS:
https://www.cnbc.com/2021/02/04/jim-cramer-issues-caution-about-celebrity-spac-plays.html
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My dog should have one ready in a week or so - RPG 1 Poo Poo 4U. You all can buy in early! It will be awesome.
I can't wait for the distributions.
I might have to scoop one up!
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It's like I find a new one every day:
'There's never been a time like this': Wall Street is piling into trading cards as prices soar (https://www.cnn.com/2021/02/12/investing/baseball-cards-markets/index.html)
Talk about an everything bubble.
Oh, no.. one of my tenants (office building) started a sports card trading shop last year. He's in the bubble!
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When all this finally pops it's going to be epic.
Too bad I have no idea when that might happen. The trading cards and GME insanity make me think it might be soon, though.
-W
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It's like I find a new one every day:
'There's never been a time like this': Wall Street is piling into trading cards as prices soar (https://www.cnn.com/2021/02/12/investing/baseball-cards-markets/index.html)
Talk about an everything bubble.
Oh, no.. one of my tenants (office building) started a sports card trading shop last year. He's in the bubble!
He's had a helluva year I am sure. If anything, sports cards have doubled in the last year.
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Someone, just for the sake of performance art, needs to start a Tulip bulb futures business.
-W
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Someone, just for the sake of performance art, needs to start a Tulip bulb futures business.
-W
I suggest we create an ETF which invests only in SPACs which take public companies which exclusively invest in Rare Tulip Bulb Non-Fungible Token futures. It will be the first 3X Tulip Bulb NFT ETF
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Tulips to the moon!
Diamond Tulip hands!
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I just saw an add for transparentbusiness.com IPO.
The entire pitch was “IPOs make people rich, Amazon is up 10 million %, we have an IPO, it’s just 2$ a share, what are you waiting for? Get the pre-ipo shares now”
Had 0 information about their business, just random info about how great IPOs are. Was a 4min long ad on YouTube.
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I just saw an add for transparentbusiness.com IPO.
The entire pitch was “IPOs make people rich, Amazon is up 10 million %, we have an IPO, it’s just 2$ a share, what are you waiting for? Get the pre-ipo shares now”
Had 0 information about their business, just random info about how great IPOs are. Was a 4min long ad on YouTube.
err.. isn't that a lack of transparency in their business?.... asking for a friend.
Tl;Dr ... Lotsa claims, looks like micromanagement from here.
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I just saw an add for transparentbusiness.com IPO.
The entire pitch was “IPOs make people rich, Amazon is up 10 million %, we have an IPO, it’s just 2$ a share, what are you waiting for? Get the pre-ipo shares now”
Had 0 information about their business, just random info about how great IPOs are. Was a 4min long ad on YouTube.
err.. isn't that a lack of transparency in their business?.... asking for a friend.
Tl;Dr ... Lotsa claims, looks like micromanagement from here.
I think it's very transparent. There is no business, only an IPO. People don't want to buy businesses; they want an IPO. So there you go, an IPO!
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I just saw an add for transparentbusiness.com IPO.
The entire pitch was “IPOs make people rich, Amazon is up 10 million %, we have an IPO, it’s just 2$ a share, what are you waiting for? Get the pre-ipo shares now”
Had 0 information about their business, just random info about how great IPOs are. Was a 4min long ad on YouTube.
err.. isn't that a lack of transparency in their business?.... asking for a friend.
Tl;Dr ... Lotsa claims, looks like micromanagement from here.
I think it's very transparent. There is no business, only an IPO. People don't want to buy businesses; they want an IPO. So there you go, an IPO!
https://transparentbusiness.com/invest.html (https://transparentbusiness.com/invest.html)
I really can't tell if this site is just a troll or what. Just look at this page, it has a unicorn on as the background with a heading "A 10,000% Return on Investment Opportunity?"
The video I was talking about is there also
Is this as good as an investment as Prestige Worldwide??
Has to be some sort of crazy pyramid scheme.
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Ray Dalio posted some of his analysis and thoughts on this subject today: Are We In a Stock Market Bubble?
https://www.linkedin.com/pulse/we-stock-market-bubble-ray-dalio/?trackingId=PngJstqlRyiMGUTvH%2BBZBw%3D%3D
His conclusion is that the “bubble stocks” are in a bubble :-).
There is a very big divergence in the readings across stocks. Some stocks are, by these measures, in extreme bubbles (particularly emerging technology companies), while some stocks are not in bubbles.
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Ray Dalio posted some of his analysis and thoughts on this subject today: Are We In a Stock Market Bubble?
https://www.linkedin.com/pulse/we-stock-market-bubble-ray-dalio/?trackingId=PngJstqlRyiMGUTvH%2BBZBw%3D%3D
His conclusion is that the “bubble stocks” are in a bubble :-).
There is a very big divergence in the readings across stocks. Some stocks are, by these measures, in extreme bubbles (particularly emerging technology companies), while some stocks are not in bubbles.
I saw that! It fits my view that we have 10-20% further to go up until it's time to really consider hedging more of one's portfolio. The next injection of financial adrenaline is coming, and that would be an unwise time to sit out.
However, there is a risk right now that a meltdown in ultra-risk assets could lead to a 20-30% correction in lower-risk assets. E.g. Bitcoin's "market cap" just exceeded $1T and doesn't appear to be on Dalio's bubble radar. At some point, we're talking about asset bubbles on the same scale as mortgage bundles in 2007, or tech stocks in 2000.
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Ray Dalio posted some of his analysis and thoughts on this subject today: Are We In a Stock Market Bubble?
https://www.linkedin.com/pulse/we-stock-market-bubble-ray-dalio/?trackingId=PngJstqlRyiMGUTvH%2BBZBw%3D%3D
His conclusion is that the “bubble stocks” are in a bubble :-).
There is a very big divergence in the readings across stocks. Some stocks are, by these measures, in extreme bubbles (particularly emerging technology companies), while some stocks are not in bubbles.
I saw that! It fits my view that we have 10-20% further to go up until it's time to really consider hedging more of one's portfolio. The next injection of financial adrenaline is coming, and that would be an unwise time to sit out.
However, there is a risk right now that a meltdown in ultra-risk assets could lead to a 20-30% correction in lower-risk assets. E.g. Bitcoin's "market cap" just exceeded $1T and doesn't appear to be on Dalio's bubble radar. At some point, we're talking about asset bubbles on the same scale as mortgage bundles in 2007, or tech stocks in 2000.
Don't you think it's the opposite regarding Bitcoin? Bitcoin price going up means other assets aren't going up - i.e. it's like people taking money out of the market/bonds/etc. and putting it under their mattress.
When bitcoin drops (lots of people take their money out to spend/invest/etc.) then stocks etc. should go up. Bitcoin going up is actually keeping inflation of other assets down.
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Ray Dalio posted some of his analysis and thoughts on this subject today: Are We In a Stock Market Bubble?
https://www.linkedin.com/pulse/we-stock-market-bubble-ray-dalio/?trackingId=PngJstqlRyiMGUTvH%2BBZBw%3D%3D
His conclusion is that the “bubble stocks” are in a bubble :-).
There is a very big divergence in the readings across stocks. Some stocks are, by these measures, in extreme bubbles (particularly emerging technology companies), while some stocks are not in bubbles.
I saw that! It fits my view that we have 10-20% further to go up until it's time to really consider hedging more of one's portfolio. The next injection of financial adrenaline is coming, and that would be an unwise time to sit out.
However, there is a risk right now that a meltdown in ultra-risk assets could lead to a 20-30% correction in lower-risk assets. E.g. Bitcoin's "market cap" just exceeded $1T and doesn't appear to be on Dalio's bubble radar. At some point, we're talking about asset bubbles on the same scale as mortgage bundles in 2007, or tech stocks in 2000.
Don't you think it's the opposite regarding Bitcoin? Bitcoin price going up means other assets aren't going up - i.e. it's like people taking money out of the market/bonds/etc. and putting it under their mattress.
When bitcoin drops (lots of people take their money out to spend/invest/etc.) then stocks etc. should go up. Bitcoin going up is actually keeping inflation of other assets down.
Maybe there's a general speculative enthusiasm, with some going into BTC and some to stocks. BTC would be making stocks go up less than if BTC didn't exist, but when the "animal spirits" of enthusiasm go down, both will drop?
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Ray Dalio posted some of his analysis and thoughts on this subject today: Are We In a Stock Market Bubble?
https://www.linkedin.com/pulse/we-stock-market-bubble-ray-dalio/?trackingId=PngJstqlRyiMGUTvH%2BBZBw%3D%3D
His conclusion is that the “bubble stocks” are in a bubble :-).
There is a very big divergence in the readings across stocks. Some stocks are, by these measures, in extreme bubbles (particularly emerging technology companies), while some stocks are not in bubbles.
I saw that! It fits my view that we have 10-20% further to go up until it's time to really consider hedging more of one's portfolio. The next injection of financial adrenaline is coming, and that would be an unwise time to sit out.
However, there is a risk right now that a meltdown in ultra-risk assets could lead to a 20-30% correction in lower-risk assets. E.g. Bitcoin's "market cap" just exceeded $1T and doesn't appear to be on Dalio's bubble radar. At some point, we're talking about asset bubbles on the same scale as mortgage bundles in 2007, or tech stocks in 2000.
Don't you think it's the opposite regarding Bitcoin? Bitcoin price going up means other assets aren't going up - i.e. it's like people taking money out of the market/bonds/etc. and putting it under their mattress.
When bitcoin drops (lots of people take their money out to spend/invest/etc.) then stocks etc. should go up. Bitcoin going up is actually keeping inflation of other assets down.
Bitcoin is a zero-sum game, when someone buys, there’s another guy selling. My guess is the guy getting the f out of crypto right now is more likely to put that money in the market than the guy just now getting into crypto ever had plans to.
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"A 10,000% Return on Investment Opportunity?"
Ask yourself why that was a question, and if they directly answer it.
"Any investment opportunity that claims you'll receive substantially more than that could be highly risky – or be an outright fraud"
https://www.sec.gov/investor/alerts/ia_endorsement.htm
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Ray Dalio posted some of his analysis and thoughts on this subject today: Are We In a Stock Market Bubble?
https://www.linkedin.com/pulse/we-stock-market-bubble-ray-dalio/?trackingId=PngJstqlRyiMGUTvH%2BBZBw%3D%3D
His conclusion is that the “bubble stocks” are in a bubble :-).
There is a very big divergence in the readings across stocks. Some stocks are, by these measures, in extreme bubbles (particularly emerging technology companies), while some stocks are not in bubbles.
I saw that! It fits my view that we have 10-20% further to go up until it's time to really consider hedging more of one's portfolio. The next injection of financial adrenaline is coming, and that would be an unwise time to sit out.
However, there is a risk right now that a meltdown in ultra-risk assets could lead to a 20-30% correction in lower-risk assets. E.g. Bitcoin's "market cap" just exceeded $1T and doesn't appear to be on Dalio's bubble radar. At some point, we're talking about asset bubbles on the same scale as mortgage bundles in 2007, or tech stocks in 2000.
Don't you think it's the opposite regarding Bitcoin? Bitcoin price going up means other assets aren't going up - i.e. it's like people taking money out of the market/bonds/etc. and putting it under their mattress.
When bitcoin drops (lots of people take their money out to spend/invest/etc.) then stocks etc. should go up. Bitcoin going up is actually keeping inflation of other assets down.
This forum contains lots of people who casually describe their Bitcoin digits as part of their asset allocation, so clearly cryptos are diverting some retail investor dollars from the markets. Does this affect the price of stocks/bonds? It's possible I suppose, although the effect would be small. It's not like Tesla is being evaluated by institutional investors on the basis of its PE ratio or something, and the retail investors would push its price beyond the fair value they calculated as their willingness to pay.
However, Bitcoin's $1T "market cap" is not the same thing as the amount of money invested in Bitcoin. The guy who bought at $100 all those years ago only took $100 out of the stock/bond market, not $50k. Remember, only 13% of Bitcoin is available for sale. The rest is being hoarded by long-term true believers.https://medium.com/technicity/bitcoins-free-float-declines-to-just-13-of-its-total-supply-lowest-since-2014-52c20beca899 (https://medium.com/technicity/bitcoins-free-float-declines-to-just-13-of-its-total-supply-lowest-since-2014-52c20beca899)
Additionally, as @JAYSLOL notes, it's a zero-sum trade. Whoever sells their Bitcoin for $50k receives cash that they will presumably invest somewhere else, just like the person who bought the Bitcoin gives away cash that they presumably could have invested somewhere else. Overall it's a wash unless for some reason a big population of sellers wanted into the stocks/bonds markets and sold to a population of people spending the cash under their mattresses, or vice versa.
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Ray Dalio posted some of his analysis and thoughts on this subject today: Are We In a Stock Market Bubble?
https://www.linkedin.com/pulse/we-stock-market-bubble-ray-dalio/?trackingId=PngJstqlRyiMGUTvH%2BBZBw%3D%3D
His conclusion is that the “bubble stocks” are in a bubble :-).
There is a very big divergence in the readings across stocks. Some stocks are, by these measures, in extreme bubbles (particularly emerging technology companies), while some stocks are not in bubbles.
I saw that! It fits my view that we have 10-20% further to go up until it's time to really consider hedging more of one's portfolio. The next injection of financial adrenaline is coming, and that would be an unwise time to sit out.
However, there is a risk right now that a meltdown in ultra-risk assets could lead to a 20-30% correction in lower-risk assets. E.g. Bitcoin's "market cap" just exceeded $1T and doesn't appear to be on Dalio's bubble radar. At some point, we're talking about asset bubbles on the same scale as mortgage bundles in 2007, or tech stocks in 2000.
Don't you think it's the opposite regarding Bitcoin? Bitcoin price going up means other assets aren't going up - i.e. it's like people taking money out of the market/bonds/etc. and putting it under their mattress.
When bitcoin drops (lots of people take their money out to spend/invest/etc.) then stocks etc. should go up. Bitcoin going up is actually keeping inflation of other assets down.
This forum contains lots of people who casually describe their Bitcoin digits as part of their asset allocation, so clearly cryptos are diverting some retail investor dollars from the markets. Does this affect the price of stocks/bonds? It's possible I suppose, although the effect would be small. It's not like Tesla is being evaluated by institutional investors on the basis of its PE ratio or something, and the retail investors would push its price beyond the fair value they calculated as their willingness to pay.
However, Bitcoin's $1T "market cap" is not the same thing as the amount of money invested in Bitcoin. The guy who bought at $100 all those years ago only took $100 out of the stock/bond market, not $50k. Remember, only 13% of Bitcoin is available for sale. The rest is being hoarded by long-term true believers.https://medium.com/technicity/bitcoins-free-float-declines-to-just-13-of-its-total-supply-lowest-since-2014-52c20beca899 (https://medium.com/technicity/bitcoins-free-float-declines-to-just-13-of-its-total-supply-lowest-since-2014-52c20beca899)
Additionally, as @JAYSLOL notes, it's a zero-sum trade. Whoever sells their Bitcoin for $50k receives cash that they will presumably invest somewhere else, just like the person who bought the Bitcoin gives away cash that they presumably could have invested somewhere else. Overall it's a wash unless for some reason a big population of sellers wanted into the stocks/bonds markets and sold to a population of people spending the cash under their mattresses, or vice versa.
This is true of everything.....the amount a current purchaser is willing to pay sets the price. If tomorrow, the most anybody wants to pay for BTC or TSLA is $10 then that's the price. Doesn't matter if the seller bought it for $1 or $50,000. The price is the price.
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This is true of everything.....the amount a current purchaser is willing to pay sets the price. If tomorrow, the most anybody wants to pay for BTC or TSLA is $10 then that's the price. Doesn't matter if the seller bought it for $1 or $50,000. The price is the price.
Yes, but BTC is a little different than TSLA in that TSLA presumably has some book value (https://www.investopedia.com/terms/b/bookvalue.asp) while BTC does not. With that said, I have no idea if TSLA's book value is a positive or negative number.
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This is true of everything.....the amount a current purchaser is willing to pay sets the price. If tomorrow, the most anybody wants to pay for BTC or TSLA is $10 then that's the price. Doesn't matter if the seller bought it for $1 or $50,000. The price is the price.
Yes, but BTC is a little different than TSLA in that TSLA presumably has some book value (https://www.investopedia.com/terms/b/bookvalue.asp) while BTC does not. With that said, I have no idea if TSLA's book value is a positive or negative number.
The weird thing is that I'm guessing the $1.5B of bitcoin TSLA bought would count towards their book value, wouldn't it?
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Favorite bubble indicator:
Casinos in states without covid restrictions are PACKED FULL of STIMMIE check recipients.
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This is true of everything.....the amount a current purchaser is willing to pay sets the price. If tomorrow, the most anybody wants to pay for BTC or TSLA is $10 then that's the price. Doesn't matter if the seller bought it for $1 or $50,000. The price is the price.
Yes, but BTC is a little different than TSLA in that TSLA presumably has some book value (https://www.investopedia.com/terms/b/bookvalue.asp) while BTC does not. With that said, I have no idea if TSLA's book value is a positive or negative number.
The weird thing is that I'm guessing the $1.5B of bitcoin TSLA bought would count towards their book value, wouldn't it?
You're not wrong. mind blown
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There are an insane amount of sports betting billboards up in my area. About half the billboards are for some sports betting site, and the other half are for recreational marijuana.
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There are an insane amount of sports betting billboards up in my area. About half the billboards are for some sports betting site, and the other half are for recreational marijuana.
They haven't combined both hobbies yet? Gambling on pot legalization:
https://etfdb.com/themes/marijuana-etfs/
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There is a gambling mood in the air. Tesla, Bitcoin, Gamestop, travel and tourism industries, tech stocks, etc. For the last 12 months, the people who made the most money have been the people piling into the things which are least justifiable. Watching them succeed has caused a lot of investors to change their risk profile (guilty).
There must be something rational about the herds rushing toward risk. Perhaps the probability of a 2nd stimulus bill happening in March has everyone seeing a repeat of April 2020. Perhaps buying into high-beta stocks at a time when the S&P500 and Nasdaq just hit PE ratios of 40 is done with the expectation that there is a bit more valuation expansion to squeeze out until we correct.
The S&P500 returned 19.5% in 1999, even as the irrational exuberance was obvious. Thus, the cost of being correct about the existence of a dangerous bubble in late 1998 and therefore going to cash was 20% in a year, plus dividends, - although in all fairness, one would probably get into a treasury yielding 6% or so - an option we don't get today.
In hindsight, the correct way to play the 90's bubble, if one didn't know the exact timing, was with trailing stops and an IPS that said you'd stay out a year or two three* when the breach indicated the bubble was over. One would receive returns up to the end and then maybe get out after losing only, let's say, 10% of the winnings. If enough market participants are playing with stop loss orders, and they are doing so with the most volatile stocks, the stage could be set for a flash crash, maybe faster than what we saw in March 2020, or maybe a series of corrections and rebounds as they are stopped out, buy back in, and repeat.
I'm looking at other strategies that I could ride through a potential correction, or lack thereof:
-Calls & Cash: 10% S&P500 LEAPS call options, 90% short duration or muni bonds.
-Collar: Limit losses and gains to 15% a year, at minimal cost.
-S&P Long Calls + VIX Long Spreads: Hedge using volatility, and maybe win both ways.
*The staying out part would be hard for someone who escaped the carnage in 2000, but didn't know they had 2001-2003 to go.
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Personally I think there may well be a final "headfake" phase of the bubble before we see the multi-year top.. that would be a final rush into tech and the bubble stocks even as the fundamentals supporting those prices are quickly crumbling away, so Nasdaq could move higher even while interest rates climb, blowing the doors off the "future growth is supported by low discount rates" argument. This - finally - gets just about everyone convinced that the bubble is sustainable and so sows the seeds of the collapse.
I remember this dynamic playing out in the real estate bubble in 2006. As central banks tightened and interest rates were rising, instead of cooling the market we saw a final rush into the market that drove it temporarily even higher because, their argument went, "we need to get on board before interest rates go even higher!"
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SPAC SPAC ....the AFSPAC dog.
The number of public listings by zero-revenue companies valued above $1 billion currently exceeds the dot-com era (https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=newssearch&cd=&cad=rja&uact=8&ved=0ahUKEwiKzd6VlY_vAhWLRTABHe6HCDgQxfQBCDMwAA&url=https%3A%2F%2Fmarkets.businessinsider.com%2Fnews%2Fstocks%2Fspac-public-listings-zero-revenue-valued-billion-exceeds-dot-com-2021-2-1030132208&usg=AOvVaw2cI3IoAtxil3IneoEWVp-T)
SPAC Frenzy Emboldens Silicon Valley Startups to Forgo Venture Funding (https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=newssearch&cd=&cad=rja&uact=8&ved=0ahUKEwiKzd6VlY_vAhWLRTABHe6HCDgQxfQBCDswAQ&url=https%3A%2F%2Fwww.wsj.com%2Farticles%2Fspac-frenzy-emboldens-silicon-valley-startups-to-forgo-venture-funding-11614344154&usg=AOvVaw1FmDxiM_sDuhLzhqusairR)
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It's a shame there's no way to know how or when it all ends. I mean, if I had to bet, I'd bet <12 months. But I would have told you that last year too.
-W
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The S&P500 returned 19.5% in 1999, even as the irrational exuberance was obvious. Thus, the cost of being correct about the existence of a dangerous bubble in late 1998 and therefore going to cash was 20% in a year, plus dividends, - although in all fairness, one would probably get into a treasury yielding 6% or so - an option we don't get today.
You've stumbled upon something I often use: Fed Chairman Greenspan's "Irrational Exuberance" speech given Dec 5, 1996. The exuberance was in 1996, 1997, etc. It was there all the way up, for years.
https://en.wikipedia.org/wiki/Irrational_exuberance
Investing starting one month after the "irrational exuberance" speech, 1997, and staying invested 1997-2002 actually left you +26% richer, despite the 3 losing years in a row. So it's very important to distinguish if this year is more like 1999, or 1997.
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I'm watching CNBC. There was a WSB guy on a minute ago.
WSB on CNBC feels quite scary, and is sure bubbly.
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The S&P500 returned 19.5% in 1999, even as the irrational exuberance was obvious. Thus, the cost of being correct about the existence of a dangerous bubble in late 1998 and therefore going to cash was 20% in a year, plus dividends, - although in all fairness, one would probably get into a treasury yielding 6% or so - an option we don't get today.
You've stumbled upon something I often use: Fed Chairman Greenspan's "Irrational Exuberance" speech given Dec 5, 1996. The exuberance was in 1996, 1997, etc. It was there all the way up, for years.
https://en.wikipedia.org/wiki/Irrational_exuberance
Investing starting one month after the "irrational exuberance" speech, 1997, and staying invested 1997-2002 actually left you +26% richer, despite the 3 losing years in a row. So it's very important to distinguish if this year is more like 1999, or 1997.
100%
And since I'm not prescient I just keep buying every paycheck.
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Jared Dillian writes:
"I like to say that the definition of a bubble is when people are making money all out of proportion to their intelligence or work ethic."
I couldn't agree more. Jonny Shoeshines are regularly piling into anyoldstock.com and getting higher returns in a week than the stock market has historically delivered over a year.
https://www.mauldineconomics.com/the-10th-man/elevator-action
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I'm watching CNBC. There was a WSB guy on a minute ago.
WSB on CNBC feels quite scary, and is sure bubbly.
I'm of the impression that retail investors are a large part of the reason evaluations are so high and why dips quickly evaporate. (Caution! The next statement might be a bubble indicator in itself!) Watching the algos crush stocks and then watch them pop back (wtf was that huge shakeout last week? It felt like a coordinated stop loss raid) makes me think that retailers are having an impact and it's not just MMs who are moving stocks. That's certainly the case for the most popular names like AAPL and as we've seen, GME. So I'm not so sure having a representative of an increasingly large sector of the market on CNBC is all that unusual.
WSB gets a lot of flack from this site and it seems Mungeresque. I don't participate in their style of investing, but they (retailers, like us) are all part of the same group as non institutional investors.
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Jared Dillian writes:
"I like to say that the definition of a bubble is when people are making money all out of proportion to their intelligence or work ethic."
I couldn't agree more. Jonny Shoeshines are regularly piling into anyoldstock.com and getting higher returns in a week than the stock market has historically delivered over a year.
https://www.mauldineconomics.com/the-10th-man/elevator-action
I agree with all of that... but as @MustacheAndaHalf points out, this kind of information isn't actionable. The shoeshine boys could keep getting rich for another 3 years and the subsequent crash might not even drop you back to the point where you've improved your position (ie, the late 90s tech crash if you'd invested in 97). Or it could crash tomorrow and you'd be cursing yourself for not selling last week.
-W
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Jared Dillian writes:
"I like to say that the definition of a bubble is when people are making money all out of proportion to their intelligence or work ethic."
I couldn't agree more. Jonny Shoeshines are regularly piling into anyoldstock.com and getting higher returns in a week than the stock market has historically delivered over a year.
https://www.mauldineconomics.com/the-10th-man/elevator-action
I agree with all of that... but as @MustacheAndaHalf points out, this kind of information isn't actionable. The shoeshine boys could keep getting rich for another 3 years and the subsequent crash might not even drop you back to the point where you've improved your position (ie, the late 90s tech crash if you'd invested in 97). Or it could crash tomorrow and you'd be cursing yourself for not selling last week.
-W
I am too young to really remember the dot com bubble, and I was in high school in 07-08, so I don't really remember any indicators relative to that bubble, but, to me, a rough 'dipstick' test for bubble-ness is how much my non-financial peers are discussing 'stonks.' When a coworker of mine who can't explain what a cryptocurrency is, but is putting money into it since his 'cousin' tells him it is a free money machine, and my DW's coworkers are talking about selling their potentially extremely lucrative Pharma stock holdings to buy rando stocks (when the potential payout on the pharma stocks is huge), that indicated a bubble to me. Also, people look at me like I'm a nutjob when I caution against retail investing like GME, et al.
WB said to be "Greedy when others are fearful, and fearful when others are greedy." Well, people are greedy AF right now.
I don't have a strategy when the bust happens other than to increase my investments into the fire sale that the market will be on in 12-18 months.
**Edited for clarity
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Jared Dillian writes:
"I like to say that the definition of a bubble is when people are making money all out of proportion to their intelligence or work ethic."
I couldn't agree more. Jonny Shoeshines are regularly piling into anyoldstock.com and getting higher returns in a week than the stock market has historically delivered over a year.
https://www.mauldineconomics.com/the-10th-man/elevator-action
I agree with all of that... but as @MustacheAndaHalf points out, this kind of information isn't actionable. The shoeshine boys could keep getting rich for another 3 years and the subsequent crash might not even drop you back to the point where you've improved your position (ie, the late 90s tech crash if you'd invested in 97). Or it could crash tomorrow and you'd be cursing yourself for not selling last week.
-W
It is very actionable. I am actioning on it :)
Yes it is true that the market can keep on going higher and you can "miss out on further gains". But are you always going to wheel out the FOMO argument whenever someone suggests you do something different?
Ultimately you are always going to regret not buying more of something that is going up and not selling more of something that is not going down, but your regrets must be balanced with your appetite for risk. Right now I judge there to be a lot of risk in the market in relation to the expected reward, so I choose to dial it back. I don't have a crystal ball and could well be wrong, but we can only each come to our own individual conclusions by our own internal comfort levels.
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The problem is that for most people, fear of losses outweighs desire for gains so much that they trade themselves broke. We have reams of data and all the famous people like Buffet all saying market timing doesn't work.
Vand, what specific actions have you taken? Sold shares? Shorted things?
-W
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The problem is that for most people, fear of losses outweighs desire for gains so much that they trade themselves broke. We have reams of data and all the famous people like Buffet all saying market timing doesn't work.
Vand, what specific actions have you taken? Sold shares? Shorted things?
-W
Nothing that would be considered earth shattering. I've simply repositioned myself below my personal "default aggression level" because I judge the market to be much more euphoric than normal. Less stocks, more mid & short term bonds, cash, gold, and within stocks I've positioned myself away from growth and towards value.
One money manager who I think is worth reading is Howard Marks. There's a good interview with him here about how you should position yourself judged against your overall barometer of the enthusiasm.
https://mebfaber.com/2018/10/03/episode-124-howard-marks-its-not-what-you-buy-its-what-you-pay-for-it-that-determines-whether-something-is-a-good-investment/
It’s not a matter of in or out, or today or tomorrow, all of which have so much precision and definiteness to them, but rather think of it as a speedometer from 0 to 100. And 0 is maximum defence all cash and 100 is maximum offense fully invested in aggressive and risky assets. My reference to calibrating is really saying, “Where should we be in between those extremes of 0 to 100?” Nobody should run his portfolio that today I’m 0 and two weeks I’m a 100 and then I go back to 0. We should adjust moderately within the range. First of all, I would encourage each of your readers to think about where, from 0 to a 100, they should normally be. Think about your age, think about your earnings, think about your future, think about how much assets you have, think about your circumstances, how much assets you might need in a pinch, think about your psychological makeup and your ability to live with risk. You might say, “You know what, I’m a young person. I have a bright future. I have a good income. I’m making more money than I need every day. I’m putting some aside into the market. I’ve been through this before. I can stand to live with fluctuations. I think I’m a 75 or an 80. My normal risk posture is 75 or 80.” So I think it’s important to do that. Of course, it’s really important to do it accurately. And one of the problems is that people, in good times, people overestimate their ability to live with pain. And I remember the people who back in ’97 when the tech stocks were booming, people saying, “Oh, you know what? I wouldn’t mind if I lost 30% of my 401k portfolio not so much, it’d be fine.” Believe me when they went down 40% they weren’t fine.
So I would encourage everybody who’s listening to try to think about what their normal risk posture should be and need to do it in the form of my speedometer from 0 to a 100. So we have a person who says, “I’m normally a 75.” Now the next question is, “Okay, then where should you be today?” Today are we in the depressed part of the cycle and are things undervalued relative to history and are people moping around and willing to take risk in which environment I would say you should amp up your risk because you’ll be getting a lot of bargains? Or are we in the elevated part of the cycle where everybody’s happy, nobody sees anything to worry about, everybody thinks risk is their friend, that the more risk they take, the more money they’ll make. And so securities are priced above their historic levels and the mood is very positive, which means that there’s probably a lot of optimism priced into every security. If you think you’re in the elevated portion of the cycle, then I think you wanna turn the speedometer down and maybe you wanna only be a 50 or a 60 at that time. You don’t have to have the certainty to go from your normal 75 to 0 in order to do a good job of managing our assets and adjustment within the range, I think, is all that most people can do.
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Don't know if anyone has been following this story:
https://www.nytimes.com/2021/03/28/business/greensill-capital-collapse.html
https://www.youtube.com/watch?v=hhHdtDyQD90
the bull argument is that profits are continuing to grow...
but you wonder how much other financial trickery, similar to this, is being used to tart up company balance sheets and will be exposed in due course.
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Don't know if anyone has been following this story:
https://www.nytimes.com/2021/03/28/business/greensill-capital-collapse.html
https://www.youtube.com/watch?v=hhHdtDyQD90
the bull argument is that profits are continuing to grow...
but you wonder how much other financial trickery, similar to this, is being used to tart up company balance sheets and will be exposed in due course.
Didn't read bc of paywall but accounting or lack of any oversight applies to 95% of the SPACS, I mean all they have to say is trust us we will have something of value at some point in the very far future.
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When I was in High School, particularly my Freshman year, a group of us were playing Magic: The Gathering. I recently noticed that the best player of this group was hawking his cards (including his "Power 9" set) on Facebook. When I commented on the post, he private messaged me, offering me a $5,000 discount on a group of cards.
Rather than buy Magic Cards--it still astounds me how much those things seem to be worth--I immediate went to eTrade and bought two options contracts for $VTI. No way I'm missing out on the "Everything Bubble"!
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Rather than buy Magic Cards--it still astounds me how much those things seem to be worth--I immediate went to eTrade and bought two options contracts for $VTI. No way I'm missing out on the "Everything Bubble"!
Magic the Gathering cards have been valuable for a long time. I recall a story about the earliest edition, most valuable card going for $100,000. Looking now, that card is in the $100k to $250k range. But if you see that as a bubble indicator, check if those cards were also valuable before 2020.
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Fwiw:
1) In my city, average home prices are up about 35% since 12 months ago. ETA: Median prices up 25% to 30% depending on neighborhood.
2) Stats from specific realtors support general articles on this. The best realtor I've discussed it with says "Comps from 2020 don't count. I only use comps from the last two months and presales, because the gap from beyond that is too much."
3) Said realtor: "We're in the post-COVID boom."
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Re Greensill - sounds extremely fraudulent, arguably bubbly. Followed the story on Bloomberg Opinion's Money Stuff (Matt Levine). Lending effectively long term against imaginary receivables, borrowing to finance the loans while claiming they were secured and short term? Disaster! Original article: https://www.bloomberg.com/news/newsletters/2021-03-17/greensill-didn-t-just-finance-bluestone-s-supply-chain-kmdn7w8h
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Fwiw:
1) In my city and my neighborhood, median and average home prices are up about 35% since 12 months ago.
2) Stats from specific realtors support general articles on this. The best realtor I've discussed it with says "Comps from 2020 don't count. I only use comps from the last two months and presales, because the gap from beyond that is too much."
3) Said realtor: "We're in the post-COVID boom."
***
Re Greensill - sounds extremely fraudulent, arguably bubbly. Followed the story on Bloomberg Opinion's Money Stuff (Matt Levine). Lending effectively long term against imaginary receivables, borrowing to finance the loans while claiming they were secured and short term? Disaster! Original article: https://www.bloomberg.com/news/newsletters/2021-03-17/greensill-didn-t-just-finance-bluestone-s-supply-chain-kmdn7w8h
I heard this morning that the median home price in all of US is $370k now, that is staggering to me. Can't just be the coasts if it is up that high.
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I heard this morning that the median home price in all of US is $370k now, that is staggering to me. Can't just be the coasts if it is up that high.
I'm not on the coast, but still in a city - Austin - that benefits from the tech boom. Am curious about how widespread any US real estate bubble is.
(side note - edited details in original post)
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I heard this morning that the median home price in all of US is $370k now, that is staggering to me. Can't just be the coasts if it is up that high.
I'm not on the coast, but still in a city - Austin - that benefits from the tech boom. Am curious about how widespread any US real estate bubble is.
(side note - edited details in original post)
That's what I meant, can't be all the coasts. Austin is out of control. Denver metro (incl Boulder, ft collins areas) out of control. Florida out of control. Nashville out of control. I could go on. Combination of low rates, Corp relocations to business/tax friendly areas (like Austin) although the irony is that the people running and working for these companies tend to be coming from blue states (and have those ideals) but seem to have a limit to what is fair for them to pay,, and the covid mass wfh rush has just pushed things further (not sure what happens when these people have to go back to the office.
But don't worry about it bc there is no inflation!
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I heard this morning that the median home price in all of US is $370k now, that is staggering to me. Can't just be the coasts if it is up that high.
I'm not on the coast, but still in a city - Austin - that benefits from the tech boom. Am curious about how widespread any US real estate bubble is.
(side note - edited details in original post)
That's what I meant, can't be all the coasts. Austin is out of control. Denver metro (incl Boulder, ft collins areas) out of control. Florida out of control. Nashville out of control. I could go on. Combination of low rates, Corp relocations to business/tax friendly areas (like Austin) although the irony is that the people running and working for these companies tend to be coming from blue states (and have those ideals) but seem to have a limit to what is fair for them to pay,, and the covid mass wfh rush has just pushed things further (not sure what happens when these people have to go back to the office.
But don't worry about it bc there is no inflation!
Some cites like Houston, Pittsburg, Salt Lake City, San Antonio, and Kansas City saw very little or negative appreciation in 2020.
https://www.kiplinger.com/article/real-estate/t010-c000-s002-home-price-changes-in-the-100-largest-metro-areas.html (https://www.kiplinger.com/article/real-estate/t010-c000-s002-home-price-changes-in-the-100-largest-metro-areas.html)
Cities like Toledo, McAllen TX, Rochester, Buffalo, Lansing MI, or most of Ohio are definitely not experiencing bubbles. Homes in those places generally cost less than the cost of construction alone.
The WFH revolution is about to level out a lot of the local peaks in real estate values. I'd suggest the goal is to sell in places above 5 on Kiplinger's affordability index and buy in places below 5. The bigger question is do we have another mortgage crisis when interest rates rise a couple percent and people don't all have to pile into HCOL areas to get good IT/financial/corporate jobs any more? Recall that the 2008 crisis was largely a phenomenon of HCOL areas. Back then, unaffordability had led people to get creative with loan quality. This time, the WFH revolution might set off a panic and exodus which could feed on itself and cause plummeting prices. I would be living in fear if I owned a $750k condo and was watching coworkers zoom in from their $150k rust belt bungalows.
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Mortgage standards are still pretty good so I don't think there will be a mortgage crisis per se. But as rates rise, and already have a bit, sales will slow down. Also part of the problem has been inventory along with demand, so as vaccines continue people (older ones especially who didn't want people in their house) will start listing more and hopefully normalize market. That said if rates do rise and inventory picks up then I could see a slide back some in values.
As for WFH, a lot of financial and tech companies have ready said back in the office is coming for most.
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I live in a smaller city not close to any oceans and that most people in the USA won't even have heard of. Zillow still thinks my house has increased in value 32% in the last year.
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Don't know if anyone has been following this story:
https://www.nytimes.com/2021/03/28/business/greensill-capital-collapse.html
https://www.youtube.com/watch?v=hhHdtDyQD90
the bull argument is that profits are continuing to grow...
but you wonder how much other financial trickery, similar to this, is being used to tart up company balance sheets and will be exposed in due course.
Didn't read bc of paywall but accounting or lack of any oversight applies to 95% of the SPACS, I mean all they have to say is trust us we will have something of value at some point in the very far future.
If the lack of oversight is true then this sounds like:
South Seas Bubble
Mississippi Scheme and others in:
Memoirs of Extraordinary Popular Delusions and the Madness of Crowds
By Charles Mackay
https://www.econlib.org/library/Mackay/macEx.html
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I live in a smaller city not close to any oceans and that most people in the USA won't even have heard of. Zillow still thinks my house has increased in value 32% in the last year.
If true I think that says more about the people of the USA than the prominence of your city.
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Don't know if anyone has been following this story:
https://www.nytimes.com/2021/03/28/business/greensill-capital-collapse.html
https://www.youtube.com/watch?v=hhHdtDyQD90
the bull argument is that profits are continuing to grow...
but you wonder how much other financial trickery, similar to this, is being used to tart up company balance sheets and will be exposed in due course.
Didn't read bc of paywall but accounting or lack of any oversight applies to 95% of the SPACS, I mean all they have to say is trust us we will have something of value at some point in the very far future.
If the lack of oversight is true then this sounds like:
South Seas Bubble
Mississippi Scheme and others in:
Memoirs of Extraordinary Popular Delusions and the Madness of Crowds
By Charles Mackay
https://www.econlib.org/library/Mackay/macEx.html
SEC is finally noticing SEC Statement (https://www.sec.gov/news/public-statement/division-cf-spac-2021-03-31?utm_medium=email&utm_source=govdelivery) only 2 years, 600ish deals later. They are always late to the game so it pretty much confirms SPAC bubble. They are still not doing anything about it and just saying that they see it, what a joke.
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I live in a smaller city not close to any oceans and that most people in the USA won't even have heard of. Zillow still thinks my house has increased in value 32% in the last year.
If true I think that says more about the people of the USA than the prominence of your city.
I can confirm that in my corner of NYC prices are flat (+\- 5%) over the last ~24 months
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Mortgage standards are still pretty good so I don't think there will be a mortgage crisis per se. But as rates rise, and already have a bit, sales will slow down. Also part of the problem has been inventory along with demand, so as vaccines continue people (older ones especially who didn't want people in their house) will start listing more and hopefully normalize market. That said if rates do rise and inventory picks up then I could see a slide back some in values.
As for WFH, a lot of financial and tech companies have ready said back in the office is coming for most.
If one has $2000/mo to spend, one can afford a $480k house at 3% per bankrate's calculator. If rates rise to 5%, then one can only afford $320k, a 33% decrease.
Expand this math across all price points and it becomes obvious prices would have to drop if rates increase. After all, most people buy all the house they can possibly afford, based on the monthly payment. And people are only willing to trade down to a certain extent (i.e. everyone in the market can't switch to buying the cheapest house in the market and the high end runs out of customers who can afford it and must lower prices to move anything).
And we have people buying houses because they say it's an inflation hedge! Um, if we get even a fart of inflation that will raise mortgage rates and trigger another mortgage crisis. It's just the math.
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I agree that if interest rates go up, a lot of people buying right now may find themselves underwater on their mortgages. But I don't think that necessarily turns into a mortgage crisis until/unless people are actually struggling to make their payments, which shouldn't be as big an issue if people are sticking with fixed rate mortgages instead of the adjustable rate/teaser rate mortgages from the last crisis.
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Mortgage standards are still pretty good so I don't think there will be a mortgage crisis per se. But as rates rise, and already have a bit, sales will slow down. Also part of the problem has been inventory along with demand, so as vaccines continue people (older ones especially who didn't want people in their house) will start listing more and hopefully normalize market. That said if rates do rise and inventory picks up then I could see a slide back some in values.
As for WFH, a lot of financial and tech companies have ready said back in the office is coming for most.
If one has $2000/mo to spend, one can afford a $480k house at 3% per bankrate's calculator. If rates rise to 5%, then one can only afford $320k, a 33% decrease.
Expand this math across all price points and it becomes obvious prices would have to drop if rates increase. After all, most people buy all the house they can possibly afford, based on the monthly payment. And people are only willing to trade down to a certain extent (i.e. everyone in the market can't switch to buying the cheapest house in the market and the high end runs out of customers who can afford it and must lower prices to move anything).
And we have people buying houses because they say it's an inflation hedge! Um, if we get even a fart of inflation that will raise mortgage rates and trigger another mortgage crisis. It's just the math.
Mathematically correct and yes most first and second (first trade up) time buyers go for the max. but ignores that most of mortgages are fixed rate and 40% of market is owned outright. Sure rates will impact prices negatively but then supply slows down and qualified buyers still bit up the low inventory. The supply imbalance is a greater driver of pricing and of course incomes matter, supply nationally is less than half it was a year ago and is even more constrained in hotter markets, when supply comes back and it will, that will be what softens pricing.
Anyway it shouldn't lead to a crisis bc existing owners will just stay in place and pay their fixed rate mortgage butbhave lost equity or may be a bit under water. New buyers will get a better deal when prices go down and those mortgages will be issued at the new levels. Back in financial crisis there were liar loans (no doc), 1 -5 year ARMS at 100% financing, pick a payment, etc and all that was being sliced and diced in multiple tranches of tranches of tranches of CDOs and such. All that doesn't exist now, at least in any scale. And banks were not as well capitalized as they are now.
But I agree that priced will come down as a result of one of these things but that means the stock market will to
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CDX plywood $78 a sheet....there is your bubble indicator right there.
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CDX plywood $78 a sheet....there is your bubble indicator right there.
Is that from Covid shortages, and we should see it drop through the summer, or is that straight up inflation?
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CDX plywood $78 a sheet....there is your bubble indicator right there.
Is that from Covid shortages, and we should see it drop through the summer, or is that straight up inflation?
Mostly covid but there is probably some real inflation in there too. Lumber more than doubled from previous covid and is still going up. Perfect storm of no supply bc mills were shut down and import routes were disrupted combined with excessive demand bc only thing people could really spend money on was build decks, additions, or new homes.
Note that this is an aspect of the Fed's transitory inflation and a technicality. Inflation is an overall trend so if all prices go up 100% this year and stay at that level for the years after the Fed doesn’t consider it inflation even though we all are paying 100% more.
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Building permits and housing starts are also starting to climb significantly, which I guess is a response to how much more expensive houses have gotten in the last year, making it easier for people to make a profit on new construction.
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Mostly covid but there is probably some real inflation in there too. Lumber more than doubled from previous covid and is still going up. Perfect storm of no supply bc mills were shut down and import routes were disrupted combined with excessive demand bc only thing people could really spend money on was build decks, additions, or new homes.
Note that this is an aspect of the Fed's transitory inflation and a technicality. Inflation is an overall trend so if all prices go up 100% this year and stay at that level for the years after the Fed doesn’t consider it inflation even though we all are paying 100% more.
Yes, an interesting quirk. There is no inflation but I can't buy as much with the same amount of money.
I am just waiting for it to spill over into everything else. There is no way that long term the lumber guy gets to charge 200% more for his product and the company supplying them doughnuts doesn't raise their price.
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Mostly covid but there is probably some real inflation in there too. Lumber more than doubled from previous covid and is still going up. Perfect storm of no supply bc mills were shut down and import routes were disrupted combined with excessive demand bc only thing people could really spend money on was build decks, additions, or new homes.
Note that this is an aspect of the Fed's transitory inflation and a technicality. Inflation is an overall trend so if all prices go up 100% this year and stay at that level for the years after the Fed doesn’t consider it inflation even though we all are paying 100% more.
Yes, an interesting quirk. There is no inflation but I can't buy as much with the same amount of money.
I am just waiting for it to spill over into everything else. There is no way that long term the lumber guy gets to charge 200% more for his product and the company supplying them doughnuts doesn't raise their price.
Computer chip prices have gone up, too, from shortages and WFH trends. See https://pcpartpicker.com/trends/. It's interesting that the smaller SSDs spiked in mid-February -- is that to take advantage of the stimulus money? The trend on the DDR 2x8 and 2x16 sticks is pretty obvious.
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Computer chip prices have gone up, too, from shortages and WFH trends. See https://pcpartpicker.com/trends/. It's interesting that the smaller SSDs spiked in mid-February -- is that to take advantage of the stimulus money? The trend on the DDR 2x8 and 2x16 sticks is pretty obvious.
My MU investment (initial lot @$47, then once more @$82) is up nicely. It's at 30-something PE based on current earnings, but only at 9X forward estimate into 2022. I invested in MU with the thesis that 5G -> gazillion more IOT devices -> a lot more memory will be required and hence the 3-player oligarchy will all benefit.
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nflation is an overall trend so if all prices go up 100% this year and stay at that level for the years after the Fed doesn’t consider it inflation even though we all are paying 100% more.
(mind spins in confusion) Representing the slow caucus here. What is this quirk that everyone knows but me?
Are you saying that the Fed would call it 100% inflation the first year? If so, wouldn't the total inflation on the item from the start date to a much later time (say, 4 years after the start) end up accurate at 100%?
I haven't bought any lumber lately, so is it true we're all paying 100%? (My costs I've seen so far aren't up anywhere near that. My beans are up, but my auto insurance gave me a refund.)
Is everything up 100%, or just a subset of the purchases being made?
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nflation is an overall trend so if all prices go up 100% this year and stay at that level for the years after the Fed doesn’t consider it inflation even though we all are paying 100% more.
(mind spins in confusion) Representing the slow caucus here. What is this quirk that everyone knows but me?
Are you saying that the Fed would call it 100% inflation the first year? If so, wouldn't the total inflation on the item from the start date to a much later time (say, 4 years after the start) end up accurate at 100%?
I haven't bought any lumber lately, so is it true we're all paying 100%? (My costs I've seen so far aren't up anywhere near that. My beans are up, but my auto insurance gave me a refund.)
Is everything up 100%, or just a subset of the purchases being made?
Fed only cares about period to period and ongoing inflation. So yes, a 100% increase in year one would still equal 100% in year 4 but the Fed deems that transitory (one time) and not actual run rate inflation. If on the other hand the price increases we're spread over those 4 years (approx 19% per year) then the Fed would deem that inflation.
It's definitions correct because inflation should be measured over time on an ongoing basis. Also, true one time increases, those that ultimately revert back, should be ignored....I suspect lumber will fall into this category partially (prices should come down as supply normalizes but probably not as low as where it started). However, the Fed currently is conflating this with overall inflation rising more rapidly with prices sticking but then reverting back to a lower inflation rate.
As for prices currently, lumber is definitely way higher to the consumer but not everything is up. Also. When commodities rise producers don't always raise prices immediately and the components themselves may only be a small input of the end product. As an example, if you build a house now the lumber increase will add about $25k to the cost to build a 2500 sf house that would be $200k to $400k depending on region and quality of finishes. So the lumber prices now "only" add 5-10% of the overall cost. Labor is one of the biggest costs and that hasn't inflated yet.
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nflation is an overall trend so if all prices go up 100% this year and stay at that level for the years after the Fed doesn’t consider it inflation even though we all are paying 100% more.
(mind spins in confusion) Representing the slow caucus here. What is this quirk that everyone knows but me?
Are you saying that the Fed would call it 100% inflation the first year? If so, wouldn't the total inflation on the item from the start date to a much later time (say, 4 years after the start) end up accurate at 100%?
I haven't bought any lumber lately, so is it true we're all paying 100%? (My costs I've seen so far aren't up anywhere near that. My beans are up, but my auto insurance gave me a refund.)
Is everything up 100%, or just a subset of the purchases being made?
Fed only cares about period to period and ongoing inflation. So yes, a 100% increase in year one would still equal 100% in year 4 but the Fed deems that transitory (one time) and not actual run rate inflation. If on the other hand the price increases we're spread over those 4 years (approx 19% per year) then the Fed would deem that inflation.
It's definitions correct because inflation should be measured over time on an ongoing basis. Also, true one time increases, those that ultimately revert back, should be ignored....I suspect lumber will fall into this category partially (prices should come down as supply normalizes but probably not as low as where it started). However, the Fed currently is conflating this with overall inflation rising more rapidly with prices sticking but then reverting back to a lower inflation rate.
As for prices currently, lumber is definitely way higher to the consumer but not everything is up. Also. When commodities rise producers don't always raise prices immediately and the components themselves may only be a small input of the end product. As an example, if you build a house now the lumber increase will add about $25k to the cost to build a 2500 sf house that would be $200k to $400k depending on region and quality of finishes. So the lumber prices now "only" add 5-10% of the overall cost. Labor is one of the biggest costs and that hasn't inflated yet.
Another slow mind.
Do you happen to have any link or material where I can read up more on this?
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tooqk4u22 I thought I had followed what you were saying, but now that others are asking I am not so sure.
What I understood you to be saying: The federal reserve isn't going to change interest rates or other monetary policy (its ongoing asset purchases/money creation) in reaction to a single quarter of high inflation, but only if inflation stays high for a long enough period.
What, on re-reading, it now sounds like you may be saying: Rapid increases in price aren't counted with the federal reserve calculates how much inflation has happened.
The first -- how the fed would react to inflation numbers -- I can understand and certainly fits with my understanding of what the fed has said themselves. The second -- how the fed would calculated inflation numbers -- doesn't make sense to me, but it is certainly possible this is the result of some quirk of the formula or policy I am not familiar with.
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tooqk4u22 I thought I had followed what you were saying, but now that others are asking I am not so sure.
What I understood you to be saying: The federal reserve isn't going to change interest rates or other monetary policy (its ongoing asset purchases/money creation) in reaction to a single quarter of high inflation, but only if inflation stays high for a long enough period.
What, on re-reading, it now sounds like you may be saying: Rapid increases in price aren't counted with the federal reserve calculates how much inflation has happened.
The first -- how the fed would react to inflation numbers -- I can understand and certainly fits with my understanding of what the fed has said themselves. The second -- how the fed would calculated inflation numbers -- doesn't make sense to me, but it is certainly possible this is the result of some quirk of the formula or policy I am not familiar with.
You understood correctly. When I say the Fed doesn't count, I don't mean that they exclude it from data and literally does not count it. The data is the data. So what I meant more was that they ignore it in their evaluation, or more accurately rationalizing a narrative.
As I said some stuff is transitory in nature, which to me are thinks that spike up or down due to some event outside of normal economics such as the lumber or chip examples. If lumber prices stay where they guess won't it won't be....transitory, but guess what else it won't be next year.....inflationary, unless of course prices go up further next year but then they can keep calling it transitory.
But saying that inflation overall for this period is transitory is bit much. There are all kinds of signs of actual inflation but until emoyment is back to full they won't/can't do anything about it.....other than stick to the narrative.
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If you want, you can track almost anything via the Billion Prices Project (http://www.thebillionpricesproject.com/) if you don't believe/like the headline CPI number.
My personal feeling is that we'll have a ton of supply come online and bottlenecks in the supply chain open back up, and a lot of prices will crash. Plywood is just not that hard to make or ship in a world where Covid is under control.
-W
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If you want, you can track almost anything via the Billion Prices Project (http://www.thebillionpricesproject.com/) if you don't believe/like the headline CPI number.
I don't disbelieve or dislike the headline number, the data is all public. I disagree or dislike parts of the narrative or interpretation by the Fed.
[/Quote]
My personal feeling is that we'll have a ton of supply come online and bottlenecks in the supply chain open back up, and a lot of prices will crash. Plywood is just not that hard to make or ship in a world where Covid is under control.
-W
[/quote]
Agreed, that's why I believe it to be transitory currently
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tooqk4u22 I thought I had followed what you were saying, but now that others are asking I am not so sure.
What I understood you to be saying: The federal reserve isn't going to change interest rates or other monetary policy (its ongoing asset purchases/money creation) in reaction to a single quarter of high inflation, but only if inflation stays high for a long enough period.
What, on re-reading, it now sounds like you may be saying: Rapid increases in price aren't counted with the federal reserve calculates how much inflation has happened.
The first -- how the fed would react to inflation numbers -- I can understand and certainly fits with my understanding of what the fed has said themselves. The second -- how the fed would calculated inflation numbers -- doesn't make sense to me, but it is certainly possible this is the result of some quirk of the formula or policy I am not familiar with.
You understood correctly. When I say the Fed doesn't count, I don't mean that they exclude it from data and literally does not count it. The data is the data. So what I meant more was that they ignore it in their evaluation, or more accurately rationalizing a narrative.
As I said some stuff is transitory in nature, which to me are thinks that spike up or down due to some event outside of normal economics such as the lumber or chip examples. If lumber prices stay where they guess won't it won't be....transitory, but guess what else it won't be next year.....inflationary, unless of course prices go up further next year but then they can keep calling it transitory.
But saying that inflation overall for this period is transitory is bit much. There are all kinds of signs of actual inflation but until emoyment is back to full they won't/can't do anything about it.....other than stick to the narrative.
I am still confused, I'm not very familiar with the CPI calc even though I use that number plugged into many a formula I work with - so I really should be!
Hypothetical example:
CPI is composed of 5 items - A, B, C, D, E.
B,C,D,E increased by 1% each in YoY calculation, while A doubled. Assuming equal weight in the formula (https://en.wikipedia.org/wiki/Consumer_price_index#cite_note-8).
1. Will 'A' will be excluded from the formula if it is deemed transitory? Very simplistic formula here: https://en.wikipedia.org/wiki/Consumer_price_index#cite_note-8.
2. Or, does it get factored in anyway and cause a bit of a short lived flutter in the CPI number while the Fed and other economic policy-makers ignore that CPI volatility due to it's transitory nature?
If 1, that sounds like cooking the stats if someone does not like it subjectively :-(, and I don't like the smell of that at all. In this case I will really appreciate if you or someone else could dig up exactly what they do and why - as I'll learn something entirely new.
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Thanks, that makes sense.
ctuser, it's your option #2, it gets factored in when the fed calculates and publishes the CPI, it just isn't given the same weight when the fed decides how, if at all, to respond to a change in the CPI.
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Thanks, that makes sense.
ctuser, it's your option #2, it gets factored in when the fed calculates and publishes the CPI, it just isn't given the same weight when the fed decides how, if at all, to respond to a change in the CPI.
Thank you. That makes a lot more sense.
For a bit I started furiously googling for the CPI process and bumping up against all kinds of conspiracy websites.
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My personal feeling is that we'll have a ton of supply come online and bottlenecks in the supply chain open back up, and a lot of prices will crash. Plywood is just not that hard to make or ship in a world where Covid is under control.
-W
I thought so too (plywood being pretty easy to make) but evidently it isn't so easy. Big equipment, lot of permits. It is not something a company is just going to say, hey, lets make this because it is really profitable this year. About 4 to 5 years to set up a big plywood supply operation.
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My personal feeling is that we'll have a ton of supply come online and bottlenecks in the supply chain open back up, and a lot of prices will crash. Plywood is just not that hard to make or ship in a world where Covid is under control.
-W
I thought so too (plywood being pretty easy to make) but evidently it isn't so easy. Big equipment, lot of permits. It is not something a company is just going to say, hey, lets make this because it is really profitable this year. About 4 to 5 years to set up a big plywood supply operation.
It's not that new suppliers will come into the market but that the existing suppliers will get their factories and distribution channels back to normal. Although there are some new suppliers coming online domestically for lumber in general.
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My personal feeling is that we'll have a ton of supply come online and bottlenecks in the supply chain open back up, and a lot of prices will crash. Plywood is just not that hard to make or ship in a world where Covid is under control.
-W
I thought so too (plywood being pretty easy to make) but evidently it isn't so easy. Big equipment, lot of permits. It is not something a company is just going to say, hey, lets make this because it is really profitable this year. About 4 to 5 years to set up a big plywood supply operation.
It's not that new suppliers will come into the market but that the existing suppliers will get their factories and distribution channels back to normal. Although there are some new suppliers coming online domestically for lumber in general.
The lumber futures market seems to agree. There's wild backwardization going on in lumber futures. The lumber squeeze is predicted to be over by January - the market appears to be predicting a 25% drop. If I were building a house, I'd see these numbers and think hard about delaying a year.
https://www.cmegroup.com/trading/agricultural/lumber-and-pulp/random-length-lumber_quotes_globex.html?optionProductId=2499&optionExpiration=2499-K1 (https://www.cmegroup.com/trading/agricultural/lumber-and-pulp/random-length-lumber_quotes_globex.html?optionProductId=2499&optionExpiration=2499-K1)
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Well, the March inflation numbers are out and consumer prices rose at an annualized rate of 7.6%*
*0.6% month over month (1.006^12 to get the annualized rate). Disclaimer that month by month numbers are very noisy, which is why people often use year over year inflation which was much lower (2.6%) but reflects the sum of falling prices early in the pandemic and rising prices more recently.
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Related to home prices and mortgage rates... we first bought out house in 2018 and our rate was 4.75%, rates went up briefly after that and I was shocked how much Redfin/Zillow estimated the price of our house had decreased. I realize those estimates aren't incredibly accurate, but the comps were definitely selling for less and I was a little nervous given how much we had spent. Once rates started to fall, the value of the home started to go up and continues to go up with the prevalence of cheap money.
I know some friends of friends who just sold their house for almost double what they paid for it about five years ago (frothy indicator!). They are going to have to live with parents until they figure out what they are going to do which will likely be to buy a McMansion much further out from the Bay Area core. Another friend talked to their RE agent about what they could get out of their house and it was a lot, but she said it's an absolutely terrible time to be a buyer right now, no matter what you can get for your house. Unless you want to move to Ohio.
I agree there will likely be some underwater mortgages once rates go up. This is what happened briefly to us in 2018.
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Is there evidence that lenders are restricting standards to the point that we'll have a crisis with "under water" loans? I haven't seen it.
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Standards are pretty tight (setting aside the low interest rates themselves).
As an example, in 2005 when I was in graduate school and making ~$20k a year, a friend who is a realtor kept trying to talk my wife and I (who was making about $35k as a research tech before starting grad school) into buying a house. I had lunch with her mortgage broker lady (because she was paying for lunch) and she showed me a worksheet that said we could qualify for like $750k, with a bunch of number fudging and "estimating your income in the future" going on. Luckily we didn't buy a house.
Fast forward to this past year when I went to cash out refi to put money into the market in the spring. We make something like $85-100k now including dividends and such (we both work part time at this point) and we could qualify for $360k in mortgage - double the (actual) income, half the mortgage. We had to verify *everything* carefully and it was a giant PITA.
We could still get a drop in RE prices and people underwater, of course. But it won't be because of lending standards.
-W
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I think it's important to distinguish between "a lot of people go underwater on their mortgages" and "a lot of people default on their mortgages". Whenever property values decline significantly (which I would expect to happen when rates rise and the same monthly payment translates to a smaller total mortgage), the first situation can kick in. But as long as the qualification criteria were reasonable folks should mostly be able to continue paying their existing fixed rate mortgages so we wouldn't see the same big wave of defaults like 07/08.
Being underwater means less mobility for workers (already declining in the USA) which economic models connect to reduced economic growth and slower recovery from recessions. But it wouldn't, by itself, necessarily produce a big economic crisis.
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All of these new threads about crypto investing here = glad I'm not speculating in that stuff.
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@ice_beard , owning an asset that can drop 20% in a day is a little more palatable when you're up 4X from what you paid, but I hear you.
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@ice_beard , owning an asset that can drop 20% in a day is a little more palatable when you're up 4X from what you paid, but I hear you.
That is great for those who buy at the bottom, but what about someone who buys in now and then it drops 20%.
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I have very little doubt that Bitcoin and others will swing wildly from today. If you truly want to own some, averaging in will reduce your risk and perhaps also your return. I advise committing yourself to rules about when to buy and how much to buy so that you don't find yourself buying a bunch when it goes down 5% only to have it go down another 20% after that.
But I also know that high enough returns at lower risk are available through investing in broad stock-based index funds, and the fees for that are very low. People can ignore this asset class and still build a strong set of resources for (early) retirement.
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I saw that 98% of bitcoin is owned by just 2% of blockchain accounts. If that's true it Means that there is no breadth and very few/small buyers are driving the price. That swings both ways and doubly so if those 2% start selling aggressively.
Bubble!
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I saw that 98% of bitcoin is owned by just 2% of blockchain accounts. If that's true it Means that there is no breadth and very few/small buyers are driving the price. That swings both ways and doubly so if those 2% start selling aggressively.
Bubble!
Is that looking at all the addresses which have ever been used or all the addresses which currently carry a balance? There are about 460M extant bitcoin addresses. 2% of that would be about 9M addresses* setting the price. With we limit the universe to accounts with an active balance that's more like 30M, which would translate to 600,000 addresses* setting the price.
I found a random estimate suggesting there are approximately 10M total people in the world who are actively trading stocks. Let's make up some numbers, and assume the average investor who is actively buys and sells stocks holds 100 companies at any given time. VT includes about 9,000 total stocks, so this would suggest the average number of investors setting the share price of any given company at any given time is about 110,000 people (10M people *100 stocks/9000 companies). So if you statistic is correct, that would suggest the number of people setting the price of bitcoin is either roughly the same order of magnitude or substantially higher.
Now that's not a guarantee that the price of bitcoin (or the price of any given stock) is going to behave in a way that makes sense to any of us. But it wouldn't seem to be a major unique downside of bitcoin.
*Keep in mind that the number is people is almost certainly modestly smaller then the number of addresses since many individuals are going to have bitcoins distributed across multiple accounts.
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Bitcoin is probably in a bubble period. I bought a little more this morning anyway. Bubbles include some nice appreciation.
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I’m seeing „Bitcoin investing“ advertising in a major newspaper since some weeks now.
Titled „she makes 300€ per hour“ sitting in a shiny car.
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Look at those 4 headline image stories.. I mean, does it get any more obvious?
(https://i.postimg.cc/8PxWQtBV/Capture.png)
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Look at those 4 headline image stories.. I mean, does it get any more obvious?
(https://i.postimg.cc/8PxWQtBV/Capture.png)
Those might be clickbait-y videos based on the stuff google knows you are interested in
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Look at those 4 headline image stories.. I mean, does it get any more obvious?
(https://i.postimg.cc/8PxWQtBV/Capture.png)
Those might be clickbait-y videos based on the stuff google knows you are interested in
Nah, checked it on incognito browser to make sure. That's what they're peddling these days.
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Let's keep the screenshots coming. This thread will be gold in about 7-10 years.
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A co-worker asked me if I was "investing" in crypto yesterday. That was a short answer, no. We started talking about personal finance a bit and she told me how she maxes out her 403b every year and she's so glad she has all these years. She said she knows people who have stopped contributing to their retirement accounts and are buying stocks/crypto instead. That's the indicator part.
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She said she knows people who have stopped contributing to their retirement accounts and are buying stocks/crypto instead. That's the indicator part.
Couldn't they buy stocks inside their retirement accounts? ... anyway, yes I agree that sure sounds like a bubble indicator to me.
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I have co-workers who use their brokerage link accounts within their 401Ks to try to dance into and out of individual stocks.
I use my brokerage link to add small cap value index funds. Since their ETFs, I have to go in manually and set the trades, so there's a little lag compared to if I had mutual fund options for them.
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I have co-workers who use their brokerage link accounts within their 401Ks to try to dance into and out of individual stocks.
I use my brokerage link to add small cap value index funds. Since their ETFs, I have to go in manually and set the trades, so there's a little lag compared to if I had mutual fund options for them.
I set up my wife's brokerage link (fidelity) recently for the same reason (SCV & REIT) - was able to find fidelity mutual funds which were no transaction fee and could buy automatically. Because the expense ratio is slightly high, I will sweep everything into the equivalent ETF's 1x - 2x a year when we re-balance. Just an idea, less trades to execute, if it bothers you.
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Back to the question in the title:
On Monday, Sotheby’s announced it had brokered a $1.8 million sale of Kanye West’s Nike Air Yeezy 1 sneakers, making them the most expensive pair of (known) shoes to sell, ever. But the sneakers weren’t purchased by a footwear-loving collector. Instead, they were acquired by the company Rares, which plans to fractionalize pieces of the shoes as an investment. ... Shares in the sneakers will be released on June 16 and will be one of Rares’s first offerings.
https://www.bloomberg.com/news/articles/2021-04-26/a-company-paid-1-8-million-for-yeezy-sneakers-so-you-can-afford-them
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Back to the question in the title:
On Monday, Sotheby’s announced it had brokered a $1.8 million sale of Kanye West’s Nike Air Yeezy 1 sneakers, making them the most expensive pair of (known) shoes to sell, ever. But the sneakers weren’t purchased by a footwear-loving collector. Instead, they were acquired by the company Rares, which plans to fractionalize pieces of the shoes as an investment. ... Shares in the sneakers will be released on June 16 and will be one of Rares’s first offerings.
https://www.bloomberg.com/news/articles/2021-04-26/a-company-paid-1-8-million-for-yeezy-sneakers-so-you-can-afford-them
Same thing is happening with baseball cards right now. Basically a stock exchange for cards where you can own shares, trade, and realize profits from outside offers... kind of crazy, but at least it's tangible things **cough** crypto **cough**.
Speaking of crypto, I have now received texts out of the blue from acquaintances (knowing I'm an "investment guy") asking if I'm in cryptos and telling me that they are making tons of money in crypto... yeah, there's a bubble. But I think it's far from popping.
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^ Wow!
I know a sneakerhead who definitely wants the hottest shoes at the lowest price. He has became a proud connoisseur of the websites who show how to tell the good fakes from bad ones. A born entrepreneur, he has taken great glee in buying the best fakes, impressing people by wearing them, then selling at a profit.
Financial investment? Cash is capital for hands-on business to him. If he buys a share in Rare, it would be his first speculation in an instrument he can't touch. I will then consider the bubble to be at full boil! Staying tuned.
PS. Dogecoin - will it reach a dollar?
Gotta admit, cute little silly dogecoins at 59 cents is mind blowing. Up over 100 to 1 this year, bubbly bubbly.
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Will Rares buy beanie babies? Or one of those cabbage patch dolls?
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Will Rares buy beanie babies? Or one of those cabbage patch dolls?
If there's one valuable enough to split up into shares, you bet.
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Back to the question in the title:
On Monday, Sotheby’s announced it had brokered a $1.8 million sale of Kanye West’s Nike Air Yeezy 1 sneakers, making them the most expensive pair of (known) shoes to sell, ever. But the sneakers weren’t purchased by a footwear-loving collector. Instead, they were acquired by the company Rares, which plans to fractionalize pieces of the shoes as an investment. ... Shares in the sneakers will be released on June 16 and will be one of Rares’s first offerings.
https://www.bloomberg.com/news/articles/2021-04-26/a-company-paid-1-8-million-for-yeezy-sneakers-so-you-can-afford-them
Same thing is happening with baseball cards right now. Basically a stock exchange for cards where you can own shares, trade, and realize profits from outside offers... kind of crazy, but at least it's tangible things **cough** crypto **cough**.
Speaking of crypto, I have now received texts out of the blue from acquaintances (knowing I'm an "investment guy") asking if I'm in cryptos and telling me that they are making tons of money in crypto... yeah, there's a bubble. But I think it's far from popping.
strange, this happened to me yesterday, too. The guy sounded like some kind of committed crypto- hound, eventually admitted he'd only bought his ethereum at the beginning of May.
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My financially illiterate and irresponsible sister is getting into the action and opened a robinhood account a couple months ago. She put in $40 and bought random meme stonks including AMC and ethereum. She's been sending me screen shots and was up to $318 yesterday. Lots of other people contacting me asking about how to create accounts and invest since everything is going bonkers and everyone wants a part of the action.
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So your sister is up 8x?
Credit to her.
She could withdraw 25% of her account today and manage the rest with "house money".
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Garden variety SPACs are so last year. 2021 is the year of the SCALEs.
We are pioneering a new structure called SCALE, or Stakeholder-Centered Aligned Listed Equity, where returns for the sponsor are primarily dependent on the stock price performance of the company with which we enter into a business combination. Traditionally, sponsors of blank check companies purchase 20% of the issued stock at a nominal price that is awarded to the sponsor regardless of performance, and solely on the ability to close an initial business combination. Instead, in NightDragon Acquisition Corp.’s SCALE structure, our sponsor will earn its promote based on the occurrence of certain triggering events
Speaking of SPACs, I thought you might be interested if you haven't already heard, Benson Hill is going public in a SPAC soon.
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Garden variety SPACs are so last year. 2021 is the year of the SCALEs.
We are pioneering a new structure called SCALE, or Stakeholder-Centered Aligned Listed Equity, where returns for the sponsor are primarily dependent on the stock price performance of the company with which we enter into a business combination. Traditionally, sponsors of blank check companies purchase 20% of the issued stock at a nominal price that is awarded to the sponsor regardless of performance, and solely on the ability to close an initial business combination. Instead, in NightDragon Acquisition Corp.’s SCALE structure, our sponsor will earn its promote based on the occurrence of certain triggering events
Speaking of SPACs, I thought you might be interested if you haven't already heard, Benson Hill is going public in a SPAC soon.
Oh so they are. Thanks for letting me know @EvenSteven!
For reasons too boring to mention, I find I have mixed feelings about the whole thing. But hopefully going public will be good for the folks with stock options working there.
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People are "buying the dip" of bitcoin today, on margin.
It's fun to follow the btc stream on stocktwits when there is gig movement like today.
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Put an offer in on a multifamily this afternoon that was listed over the weekend and had first showings today; new-ish building (2010) in an old neighborhood (95% of building are 100+ years old). The area is not great, its in the 2nd worst part of town in the worst city in the county, one of the worst in the state. Appreciation has been ~1%/yr over the previous decade for all but the last year. Population in decline and all that. When I left for college there were 100s of homes, many 2-3-4 units, in the $10k-$50k range. Those same buildings are going for $100k+ right now if they are abandoned and $200k+ if they are occupied, regardless of condition.
I offer there because that is where I am from and I have a good network there. I offered 10% below asking price, at a generous 9% cap rate, much higher than I should have offered, but new construction is few and far between. Historically things go for 10%+ cap rate in this area if not more, 12%+ is not uncommon. This would have netted me about $125 a door at 52.5% expenses (high vacancy, turnover, are common and taxes are 1.5%).
Before I could finish the paper work for the offer there were 5 offers submitted, 1 well over asking price. It is absurd, the offer price was basically 0 cash flow and would lose money if rates go up even slightly. It is commercial so the rates are adjustable 7/1 ARM.
Great for the seller and the realtor, but damn - even the ghetto is on fire. Guess we already knew, but, lots of money sloshing around out there.
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Remy: Dogecoin Rap (https://www.youtube.com/watch?v=cbI31x3FpS0) thanks to @WSUCoug1994 from Welcome and General Discussion.
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Remy: Dogecoin Rap (https://www.youtube.com/watch?v=cbI31x3FpS0) thanks to @WSUCoug1994 from Welcome and General Discussion.
That just made my night
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Remy: Dogecoin Rap (https://www.youtube.com/watch?v=cbI31x3FpS0) thanks to @WSUCoug1994 from Welcome and General Discussion.
That just made my night
It made my week. I didn't know about him, but he's been around for years. Remy: Raise The Debt Ceiling Rap (https://www.youtube.com/watch?v=EoS52fVtVQM)
EDITed to add - of course ReasonTV is a libertarian organization.
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I really did like the "Dog Money" rap, thanks for sharing.
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Remy: Dogecoin Rap (https://www.youtube.com/watch?v=cbI31x3FpS0) thanks to @WSUCoug1994 from Welcome and General Discussion.
Much funny. Very wow.
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Great Expectations are surely a sign that we are approaching peak sentiment?
https://theirrelevantinvestor.com/2021/06/26/investors-prepare-to-be-disappointed/
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Great Expectations are surely a sign that we are approaching peak sentiment?
https://theirrelevantinvestor.com/2021/06/26/investors-prepare-to-be-disappointed/
That's crazy but it makes sense bc a 3rd of investors (ergo primarily millenials) only know markets that go only go up and up and up and the one time they saw a down market (pandemic) it roared back and then some in a new York minute. How can they not think markets work like that.
Meanwhile the sp500 dividend yield is 1.37%
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Great Expectations are surely a sign that we are approaching peak sentiment?
https://theirrelevantinvestor.com/2021/06/26/investors-prepare-to-be-disappointed/
That's crazy but it makes sense bc a 3rd of investors (ergo primarily millenials) only know markets that go only go up and up and up and the one time they saw a down market (pandemic) it roared back and then some in a new York minute. How can they not think markets work like that.
Meanwhile the sp500 dividend yield is 1.37%
Do you mean Gen Z? Millenials experienced the GFC as young adults and saw their parents' houses lose value dramatically.
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Great Expectations are surely a sign that we are approaching peak sentiment?
https://theirrelevantinvestor.com/2021/06/26/investors-prepare-to-be-disappointed/
That's crazy but it makes sense bc a 3rd of investors (ergo primarily millenials) only know markets that go only go up and up and up and the one time they saw a down market (pandemic) it roared back and then some in a new York minute. How can they not think markets work like that.
Meanwhile the sp500 dividend yield is 1.37%
Do you mean Gen Z? Millenials experienced the GFC as young adults and saw their parents' houses lose value dramatically.
Not as investors. The oldest part of that generation wasn't too far beyond college age and likely very few had enough to feel any investment pain. And any younger than that didn't experience it at all.
But they felt from a first job out of school kind of pain.
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Great Expectations are surely a sign that we are approaching peak sentiment?
https://theirrelevantinvestor.com/2021/06/26/investors-prepare-to-be-disappointed/
Oh to be so young and stupid:
"U.S. investors expect 17.5% real returns over the long term."
(https://theirrelevantinvestor.com/wp-content/uploads/2021/06/exp-1.jpg)
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Isn't a big chunk of that difference that investment professionals work with a lot of clients who need bonds and security?
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Isn't a big chunk of that difference that investment professionals work with a lot of clients who need bonds and security?
Maybe. The source material did not provide the specific questions being asked, but implied that the question was about what investment return you expect to achieve.
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Isn't a big chunk of that difference that investment professionals work with a lot of clients who need bonds and security?
6.7% is around the long-run average for the US stock market (real returns, not nominal). So the non-professionals are just expecting crazy high returns and/or don't know what "real" and "nominal" mean.
-W
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Isn't a big chunk of that difference that investment professionals work with a lot of clients who need bonds and security?
6.7% is around the long-run average for the US stock market (real returns, not nominal). So the non-professionals are just expecting crazy high returns and/or don't know what "real" and "nominal" mean.
-W
Likely both, but more the former. The other chart from the article shows how expectations were increasing ratcheted up the longer things continued to go well, when they should of course have been ratcheted down - the classic mistake of projecting recent returns into the far future.
(https://theirrelevantinvestor.com/wp-content/uploads/2021/06/lol.png)
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Another obvious bubble indicator were the amount of people asking "why not just buy TQQQ and ride out the volatility over the next 10 years?"
(https://theirrelevantinvestor.com/2021/12/07/is-the-correction-over/)
Here's why not:
(https://i.postimg.cc/d12qSZJf/Capture.png)
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For those who think TQQQ (3x Nasdaq 100) is a great idea, consider it compared to the plain QQQ (Nasdaq 100). From 2020-2021, both had stunning returns, two superb years. So how do they look so far in 2022? The three year performance of QQQ is 13%/year, and TQQQ has earned 8%/year. Leveraged ETFs take a disproportionate hit during bad years, as can be seen in two superb years wiped out with one bad year.
https://finance.yahoo.com/quote/TQQQ/performance?p=TQQQ
https://finance.yahoo.com/quote/QQQ/performance?p=QQQ