Author Topic: What are your bubble indicators?  (Read 27626 times)

ChpBstrd

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Re: What are your bubble indicators?
« Reply #50 on: August 24, 2020, 01:51:19 PM »
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).

bacchi

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Re: What are your bubble indicators?
« Reply #51 on: August 24, 2020, 08:31:25 PM »
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.

cschx

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Re: What are your bubble indicators?
« Reply #52 on: August 25, 2020, 02:42:11 PM »
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."

phildonnia

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Re: What are your bubble indicators?
« Reply #53 on: August 25, 2020, 03:03:03 PM »
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.

ice_beard

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Re: What are your bubble indicators?
« Reply #54 on: August 26, 2020, 12:24:48 AM »
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? 

kriserts

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Re: What are your bubble indicators?
« Reply #55 on: August 26, 2020, 05:40:58 PM »
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).

markbike528CBX

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Re: What are your bubble indicators?
« Reply #56 on: November 27, 2020, 06:35:55 PM »
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.

ice_beard

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Re: What are your bubble indicators?
« Reply #57 on: November 29, 2020, 10:09:39 PM »
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.

Steeze

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Re: What are your bubble indicators?
« Reply #58 on: November 30, 2020, 12:38:51 PM »
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...

ice_beard

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Re: What are your bubble indicators?
« Reply #59 on: December 14, 2020, 08:07:13 PM »
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. 

 

vand

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Re: What are your bubble indicators?
« Reply #60 on: December 18, 2020, 03:33:27 AM »
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
« Last Edit: December 18, 2020, 03:35:04 AM by vand »

waltworks

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Re: What are your bubble indicators?
« Reply #61 on: December 18, 2020, 07:43:47 AM »
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

dividendman

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Re: What are your bubble indicators?
« Reply #62 on: December 18, 2020, 09:59:38 AM »
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.

vand

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Re: What are your bubble indicators?
« Reply #63 on: December 18, 2020, 11:57:17 AM »
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
« Last Edit: December 18, 2020, 11:59:36 AM by vand »

ChpBstrd

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Re: What are your bubble indicators?
« Reply #64 on: December 18, 2020, 12:41:30 PM »
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.

waltworks

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Re: What are your bubble indicators?
« Reply #65 on: December 18, 2020, 12:43:15 PM »
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

PDXTabs

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Re: What are your bubble indicators?
« Reply #66 on: December 18, 2020, 01:06:08 PM »
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?

ChpBstrd

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Re: What are your bubble indicators?
« Reply #67 on: December 18, 2020, 02:16:23 PM »
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.

phildonnia

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Re: What are your bubble indicators?
« Reply #68 on: December 18, 2020, 04:16:44 PM »
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.

waltworks

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Re: What are your bubble indicators?
« Reply #69 on: December 18, 2020, 04:33:27 PM »
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

PDXTabs

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Re: What are your bubble indicators?
« Reply #70 on: December 18, 2020, 07:19:37 PM »
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).

ChpBstrd

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Re: What are your bubble indicators?
« Reply #71 on: December 18, 2020, 09:17:03 PM »
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.

PDXTabs

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Re: What are your bubble indicators?
« Reply #72 on: December 18, 2020, 09:30:18 PM »
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.
« Last Edit: December 19, 2020, 10:26:18 AM by PDXTabs »

vand

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Re: What are your bubble indicators?
« Reply #73 on: December 18, 2020, 11:58:05 PM »
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.

« Last Edit: December 19, 2020, 12:06:09 AM by vand »

vand

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Re: What are your bubble indicators?
« Reply #74 on: December 19, 2020, 01:11:14 AM »
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.

jsloan

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Re: What are your bubble indicators?
« Reply #75 on: December 19, 2020, 07:36:02 AM »
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).     


waltworks

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Re: What are your bubble indicators?
« Reply #76 on: December 19, 2020, 06:35:38 PM »
It would hilarious/ironic if bitcoin ended up correlated with the S&P 500.

-W

PDXTabs

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Re: What are your bubble indicators?
« Reply #77 on: December 19, 2020, 08:16:19 PM »
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.



Further reading.

maizefolk

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Re: What are your bubble indicators?
« Reply #78 on: December 19, 2020, 09:38:37 PM »
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.

jsloan

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vand

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Re: What are your bubble indicators?
« Reply #80 on: December 21, 2020, 04:17:42 AM »
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.

PDXTabs

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Re: What are your bubble indicators?
« Reply #81 on: December 21, 2020, 01:31:25 PM »
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.

waltworks

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Re: What are your bubble indicators?
« Reply #82 on: December 21, 2020, 01:45:44 PM »
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

ChpBstrd

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Re: What are your bubble indicators?
« Reply #83 on: December 21, 2020, 02:24:09 PM »
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.

maizefolk

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Re: What are your bubble indicators?
« Reply #84 on: December 21, 2020, 03:15:10 PM »
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.

Quote
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.

PDXTabs

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Re: What are your bubble indicators?
« Reply #85 on: December 21, 2020, 03:39:00 PM »
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 (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.

RWD

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Re: What are your bubble indicators?
« Reply #86 on: December 21, 2020, 03:47:02 PM »
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.

HPstache

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Re: What are your bubble indicators?
« Reply #87 on: December 21, 2020, 04:02:49 PM »
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....

dividendman

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Re: What are your bubble indicators?
« Reply #88 on: December 21, 2020, 04:31:58 PM »
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.

YYK

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Re: What are your bubble indicators?
« Reply #89 on: December 22, 2020, 06:48:47 AM »
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 (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!

phildonnia

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Re: What are your bubble indicators?
« Reply #90 on: December 22, 2020, 09:42:37 AM »
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.


vand

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Re: What are your bubble indicators?
« Reply #91 on: January 08, 2021, 12:23:48 AM »
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
« Last Edit: January 08, 2021, 12:31:08 AM by vand »

tsukuba

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Re: What are your bubble indicators?
« Reply #92 on: January 08, 2021, 07:21:08 AM »
>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.
« Last Edit: January 09, 2021, 02:52:08 PM by tsukuba »

PDXTabs

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Re: What are your bubble indicators?
« Reply #93 on: January 08, 2021, 10:24:45 AM »
Probably TSLA being worth more than Berkshire Hathaway, Walmart, or Facebook.

ChpBstrd

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Re: What are your bubble indicators?
« Reply #94 on: January 08, 2021, 01:32:39 PM »
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.

markbike528CBX

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Re: What are your bubble indicators?
« Reply #95 on: January 08, 2021, 02:53:19 PM »
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.


vand

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Re: What are your bubble indicators?
« Reply #96 on: January 09, 2021, 07:07:47 AM »
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.

tooqk4u22

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Re: What are your bubble indicators?
« Reply #97 on: January 09, 2021, 07:39:11 AM »
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

hodedofome

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Re: What are your bubble indicators?
« Reply #98 on: January 09, 2021, 01:32:50 PM »
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.

hodedofome

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Re: What are your bubble indicators?
« Reply #99 on: January 09, 2021, 01:37:53 PM »
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.