Author Topic: Jeremy Grantham, the stock market's Cassandra  (Read 4709 times)

MustacheAndaHalf

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Jeremy Grantham, the stock market's Cassandra
« on: May 19, 2022, 09:14:30 PM »
https://en.wikipedia.org/wiki/Cassandra "was a Trojan priestess of Apollo in Greek mythology cursed to utter true prophecies, but never to be believed. In modern usage her name is employed as a rhetorical device to indicate someone whose accurate prophecies are not believed."

Jeremy Grantham predicted both the dot-com crash and the 2008 crisis.  He predicted Japan's real estate bubble.  Last year he talked of a "super bubble" and predicted a significant stock market crash.  I didn't know of him then, but I recall Jim Kramer on CNBC saying he was tired of hearing about super bubbles.  There was no huge crash in 2021 - yet I believe he's right, and the market ignores him at their peril.
https://www.reuters.com/business/bubbles-bubbles-everywhere-jeremy-grantham-bust-ahead-2021-07-20/

From March 2020 to March 2022, the Federal Reserve used "quantitative easing" with rates at 0% and trillions (literally) of stimulus.  I believe Jeremy Grantham underestimated the power of the Fed both in generating stimulus, and in Wall Street's adage "do not fight the Fed".  It's hard for a business to go bankrupt when they can have free money at historically low interest rates.  But in March 2022, the Fed ended stimulus and began raising the Fed funds rate.

Mr Grantham points to something very rare that happened in 2021, where professional investors keep dancing when the music plays.  By that he means they may see a bubble forming, but they have to stay fully invested.  So they sell the overpriced dot-com stocks and buy something like Coca-Cola... they're still going over the cliff into a stock market crash, but it's milder.  Last year the Russell 2000 (small cap) went off the cliff while stocks like Coca-Cola did much better.  This massive gap is very rare, and shows a bubble is approaching.

Here's Jeremy Grantham from just ~12 hours ago, at the point where he explains his view on markets right now.
https://www.youtube.com/watch?v=-qD4kqAarec&t=660s

I don't have specific experience predicting the depth of a crash in advance.  Back in March 2020, I pushed 100% equities on March 20, which was the Friday before the Monday bottom on March 23.  But the longer the crash, the harder it will be to distinguish the local minimum from the overall bottom.  So I'd prefer to rely on Mr Grantham's view, which he mentioned as 2x or 3x more from markets being down -17% ... so I would round that off to a peak to trough drop of 1/2 to 2/3rds.

Back at the end of March, the U.S. Treasury yield curve had inverted, with 10yr bonds paying a lower yield than 2yr bonds.  I then watched an interview on Bloomberg TV with Jeremy Grantham, where he laid out his thesis.  I sold off all stocks and index funds, and bought some SPY puts at the start of April.  I began investing bearishly.

I believe the market ignored Jeremy Grantham because he was early.  The market's loss is my gain - I believe he will be proven right.  I suppose it's less interesting to post about this now instead of July 2021 or Jan 2022, but I wasn't aware of Mr Grantham at that time.

My portfolio switched to bearish at the start of April - I hold no stocks or passive index funds.  I'm up +9% since then, but I expect that to get more dramatic (up or down) going forward.  I have 1.5x leverage and will cut my losses if I lose 1/4th of my portfolio value.  I'm tracking my investment performance against a simple index of equal parts US stocks, international stocks, and US bonds.  That benchmark has lost 9% since early April.

Just to avoid confusion, my signature showing +228% against the market's +89% is from 2020-2021 is from "An experiment" that I ran during that time.  Back then the Fed was buying, now the Fed is selling.  Maybe I'm taking don't fight the Fed too literally, but I believe Jeremy Grantham has the correct analysis and the market doesn't.

bacchi

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #1 on: May 19, 2022, 10:10:23 PM »
Didn't he also suggest avoiding stocks in 2013? Didn't his fund, GMO, go bearish in 2016 and miss out on a lot of gains?

He's a permabear. Of course he's going to be right eventually.


Quote from: https://www.cbsnews.com/news/who-are-the-most-least-accurate-stock-gurus/
Jeremy Grantham, Chairman of GMO LLC, a global investment management firm. His score was 48 percent.

EvenSteven

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #2 on: May 20, 2022, 05:37:45 AM »
Didn't he also suggest avoiding stocks in 2013? Didn't his fund, GMO, go bearish in 2016 and miss out on a lot of gains?

He's a permabear. Of course he's going to be right eventually.


Quote from: https://www.cbsnews.com/news/who-are-the-most-least-accurate-stock-gurus/
Jeremy Grantham, Chairman of GMO LLC, a global investment management firm. His score was 48 percent.

Yeah. I think a better analogy than Cassandra is a stopped clock.

MustacheAndaHalf

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #3 on: May 20, 2022, 07:24:51 AM »
Didn't he also suggest avoiding stocks in 2013? Didn't his fund, GMO, go bearish in 2016 and miss out on a lot of gains?

He's a permabear. Of course he's going to be right eventually.

Quote from: https://www.cbsnews.com/news/who-are-the-most-least-accurate-stock-gurus/
Jeremy Grantham, Chairman of GMO LLC, a global investment management firm. His score was 48 percent.
That would make him about average by their metrics:
"The average guru also had a forecasting accuracy of about 47 percent."

Markets went up +33% in 2013, making his bearish call look rather bad:

"History is quite clear. There has been, on average, no money made in year one and two after a Presidential election going back to 1932, after you adjust for inflation. All the money is made in year three with an adequate return in year four. In general they stimulate in year 3 to create a wealth effect in year four and it works and everyone is happy. You can't do that every year. At some point you have to address a budget that is way out of balance"
https://www.forbes.com/sites/schifrin/2012/10/24/jeremy-grantham-warns-2013-will-be-a-dangerous-year-for-stocks/?sh=107a9a007010

But notice he's making the same mistake in 2013 and 2021 with the Fed.  If you take what he says, and then consider Fed actions, I think his score improves considerably.  The Fed was done stimulating, and years later looked to tighten (bringing the 2018 drop).  When he claimed a crash would happen in 2021, the Fed prevented it with 0% Fed funds rate and QE.

I think it's also important to understand his area of expertise and conviction: he's best at spotting bubbles.  And when he says "super bubble" he means several different events all pointing to the same outcome.  He points to a very rare signal that shows money manager behavior (fleeing risk assets).

So your criticism is fair, but I think after correcting for Mr Grantham's "Fed bias", his accuracy rises from average to above average.  He is worth listening to, and then confirming with other information, when he calls a bubble.

MustacheAndaHalf

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #4 on: May 20, 2022, 07:29:58 AM »
Didn't he also suggest avoiding stocks in 2013? Didn't his fund, GMO, go bearish in 2016 and miss out on a lot of gains?

He's a permabear. Of course he's going to be right eventually.


Quote from: https://www.cbsnews.com/news/who-are-the-most-least-accurate-stock-gurus/
Jeremy Grantham, Chairman of GMO LLC, a global investment management firm. His score was 48 percent.
Yeah. I think a better analogy than Cassandra is a stopped clock.
A stopped clock is right twice a day.  Given the roughly 50% accuracy of most gurus, you could fairly say they are only as good as a coin flip.

EvenSteven

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #5 on: May 20, 2022, 07:32:02 AM »
Didn't he also suggest avoiding stocks in 2013? Didn't his fund, GMO, go bearish in 2016 and miss out on a lot of gains?

He's a permabear. Of course he's going to be right eventually.


Quote from: https://www.cbsnews.com/news/who-are-the-most-least-accurate-stock-gurus/
Jeremy Grantham, Chairman of GMO LLC, a global investment management firm. His score was 48 percent.
Yeah. I think a better analogy than Cassandra is a stopped clock.
A stopped clock is right twice a day.  Given the roughly 50% accuracy of most gurus, you could fairly say they are only as good as a coin flip.

Not only that, but if you correct for the 50% of the time he was wrong, then he was right 100% of the time.

cool7hand

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #6 on: May 20, 2022, 07:42:25 AM »
Thanks for sharing!

MustacheAndaHalf

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #7 on: May 20, 2022, 08:09:54 AM »
When I listened to Jeremy Grantham back in March, the yield curve had just inverted.  I don't know how long 2y/10y need to invert to signal recession, but I had already seen risky stocks performing badly.  I had enough information to start turning bearish.

The markets have this hero complex with Fed, after being rescued repeatedly.
 There's the QT cycle that stopped in 2018 with a correction... but no jobs or inflation problem.  Then in 2020 a bear market started with tremendous speed as entire sectors of the U.S. economy were priced for bankruptcy.  Congress and the Fed both saved markets, businesses and jobs in 2020 ... but in 2021, Congress struggled to provide more stimulus.  The Fed may have acted too slowly because Congress didn't act at all, so in 2021 it was the Fed again rescuing the market.

I'm not entirely above it, myself - I profitted in 2020-2021 because the Fed put (and Congress) saved the U.S. economy from collapse.  But what markets miss is the Fed's dual mandate of controlling inflation and full unemployment.  From 2018-2021, the Fed wasn't worried about inflation.

Inflation is at levels not seen in about 40 years.  The Fed must control inflation.  Is Fed Chair Powell willing to put the economy in recession if it's necessary to control inflation?  "I hope history will record the answer is yes" was his reply in testimony to Congress.  Did he lie to Congress, or will he do his job and fight inflation?

Besides a Fed put, the market hopes for rapidly falling inflation.  When someone calls the market wrong, they better have experts and data on their side (that worked for me in March 2020).  If you look at inflation (CPI-U) for March and April, on the surface you could claim inflation fell, but that's not accurate if you dig into the numbers.  Russia invading Ukraine impacted energy prices dramatically, which caused dramaticly higher energy prices in March, which fell fractionally in April.  But it was such a huge swing that it pushed overall inflation lower.  Once you take energy out of the picture, inflation has been persistent from Oct 2021 - April 2022.  Food inflation 11-12%, all other inflation 6-7%.  If we have even 6% persistent inflation, the market is wrong - but it seems they are not digging into the data, and only using the surface numbers.

The market talked of "peak inflation" back in April, so it's also possible there's some confirmation bias going on.  If you think inflation has peaked, and then you see data showing inflation fell, there's no need to look for contradictions.  Unfortunately, I'm not aware of inflation falling rapidly from high levels in history.  The entire market seems to have taken an extreme view on inflation.

Since the market has priced in rapidly falling inflation, anything else is a surprise for markets.  My investments will work in any of: slower falling inflation, stable inflation, rising inflation.  So either the market is right in a scenario not seen before, or I'm right with data supporting my thesis.

I've got a backup plan if the Fed manages a "softish landing" (a new term from Fed Chair Powell this week - I think he's nudging markets more negative).  Fed Chair Powell talked of the longest bull market in history that went from 2009 for 10 years 8 months, by which I think he means it ended in 2020.

Back in 2020, I agreed.  But looking closer, there's something missing.  Stocks crashed severely for one week in March 2020, followed by being rescued by both Congress and the Fed.  But I would challenge the idea a bear market is merely price drops or even negative growth.  A key component of a bear market is the destruction of unhealthy businesses.  The dot-com crash wiped away profitless internet companies, just as the "tronics" era ended similarly.  But this time, from 2020-2021, bankruptcies went down.  This "bear market" was entirely safe for companies, as the Fed + Congress injected trillions of cash to save the economy from collapse.  That was the right decision - but it's also a bubble, where we saved every business because even solid businesses would have collapsed.

So my claim is that we've had a bull market from 2009-2021, which is about twice as long as the average bull market, and by far the longest in history.  I would point to 2019-2021 stock performance (+20%/year) and lower bankruptcy rates as evidence the bull market continued even in 2020 (S&P 500 +20%).  Even if the Fed manages a "softish landing", we have the longest bull market in history and are due for a bear market.  So I expect a crash owing to high inflation, and even if I'm wrong there, I expect a crash to follow the longest bull market in history.

waltworks

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #8 on: May 22, 2022, 12:29:14 PM »
Assuming he was bearish in 2013 (I am too lazy to go look it up) you would have missed out on tripling your money (196% return), as of today.

So if the S&P drops ~70% more from here, he'll be (sort of) vindicated/have broken even staying in cash.

-W

MustacheAndaHalf

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #9 on: May 23, 2022, 11:09:10 AM »
Assuming he was bearish in 2013 (I am too lazy to go look it up) you would have missed out on tripling your money (196% return), as of today.

So if the S&P drops ~70% more from here, he'll be (sort of) vindicated/have broken even staying in cash.
If someone is bearish in 2013, I don't think it's fair to extrapolate that as 0% stocks for the 10 years afterwards.

Government stimulus from March 2020 to March 2022 was the largest amount in history.  In that environment, Jeremy Grantham predicted a crash in 2021, which didn't happen.  Of course not - free money and 0% Fed funds rate keeps even the worst run companies going.  This, in my view, is a Cassandra effect, where markets ignore the idea because it had the wrong date.  You could even call Mr Grantham's 2021 prediction wrong, and I would still find it useful.

As to the crash prediction, I believe he meant 1/2 to 2/3rds of the peak S&P 500 price. SPDR S&P 500 ETF (SPY) peaked at $480, so I think his prediction translates to SPY hitting $160 to $240 range.

For me personally, I sold all equities in early April, right after the Fed money printing stopped.  I have SPY puts I bought then at various strikes that have done very well.  Anyone who moved out of stocks by early April has missed the -13% stock market drop since then.

waltworks

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #10 on: May 23, 2022, 12:35:07 PM »
Sure, but the folks who have been dancing in and out for the last 20 or 30 years are still at it. I know lots of people like that.

I don't do shit, and I didn't do shit except buy boring index funds when I had money, and I'm FI and have been for a while. I'm sure my holdings are down right now from the top, and I don't give a rat's ass, because not giving a rat's ass is, weirdly enough, a good way to make money in the long run.

You can beat the market, but listening to people like Jeremy Grantham is not the way to do it.

-W

maizefolk

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #11 on: May 23, 2022, 12:45:21 PM »
Assuming he was bearish in 2013 (I am too lazy to go look it up) you would have missed out on tripling your money (196% return), as of today.

So if the S&P drops ~70% more from here, he'll be (sort of) vindicated/have broken even staying in cash.
If someone is bearish in 2013, I don't think it's fair to extrapolate that as 0% stocks for the 10 years afterwards.

Government stimulus from March 2020 to March 2022 was the largest amount in history.  In that environment, Jeremy Grantham predicted a crash in 2021, which didn't happen.  Of course not - free money and 0% Fed funds rate keeps even the worst run companies going.  This, in my view, is a Cassandra effect, where markets ignore the idea because it had the wrong date.  You could even call Mr Grantham's 2021 prediction wrong, and I would still find it useful.

The thing is, getting the dates right is the hard part.

I can predict that based on [insert reasons here] the market is due for a 10% correction coming up and sooner or later the market will decline 10% from its then peak. Might happen this week. Might happen in 10 years. But it is going to happen.

It's only when I start telling you when the decline is going to happen that I'm starting to do something hard.

And make no mistake I find Grantham a fascinating fellow. Used to read his GMO letters and he had a whole kick on phosphorous reserves that probably played a significant role in shifting my career focus back in grad school.

But despite the interesting ideas he brings together I'm not gonna give him credit for predicting a decline when he doesn't get the "when" right.

waltworks

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #12 on: May 23, 2022, 02:38:04 PM »
Yeah, it's like Hussman. Hussman is obviously super smart. And he's been wrong over, and over, and over again. He'll probably be right this year (in my opinion, which is worth even less) but if you'd invested with him or followed his advice you'd have missed out on doubling or tripling your money in the last decade.

The volatility isn't the interesting thing about the market, if you're looking at the long term. It's the trend. But that doesn't sell newsletters/get clicks on ads.

-W

MustacheAndaHalf

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #13 on: May 24, 2022, 07:55:13 AM »
Sure, but the folks who have been dancing in and out for the last 20 or 30 years are still at it. I know lots of people like that.

I don't do shit, and I didn't do shit except buy boring index funds when I had money, and I'm FI and have been for a while. I'm sure my holdings are down right now from the top, and I don't give a rat's ass, because not giving a rat's ass is, weirdly enough, a good way to make money in the long run.

You can beat the market, but listening to people like Jeremy Grantham is not the way to do it.
And back in 2019, I would have agreed with passive investing.  The problem came in Feb 2020 when I predicted 10,000 Covid-19 cases in China days in advance.  Then the day arrived, breaking news... and a small stock market drop.  I had just predicted the future, which is not possible in an efficient market - so I switched to believing the markets were blind to Covid-19.  Ultimately actively stock picking on the theory "stocks recover" was insanely profitable, and allows to me do a lot of screwing up and still be well ahead of where I'd be with indexing.

I think you're also not seeing the distinction I make between listening to Mr Grantham, and simply following whatever he says to do.  I have listened to what he claims, but I don't know if his "super bubble" theory is accurate because I don't know the specific areas of the economy he predicts to be in bubble territory.  I'd like to hear more of what he has to say, but he has not been given that opportunity owing to claiming a crash would start last year (during Fed stimulus - unlikely).

MustacheAndaHalf

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #14 on: May 24, 2022, 08:01:08 AM »
Assuming he was bearish in 2013 (I am too lazy to go look it up) you would have missed out on tripling your money (196% return), as of today.

So if the S&P drops ~70% more from here, he'll be (sort of) vindicated/have broken even staying in cash.
If someone is bearish in 2013, I don't think it's fair to extrapolate that as 0% stocks for the 10 years afterwards.

Government stimulus from March 2020 to March 2022 was the largest amount in history.  In that environment, Jeremy Grantham predicted a crash in 2021, which didn't happen.  Of course not - free money and 0% Fed funds rate keeps even the worst run companies going.  This, in my view, is a Cassandra effect, where markets ignore the idea because it had the wrong date.  You could even call Mr Grantham's 2021 prediction wrong, and I would still find it useful.
The thing is, getting the dates right is the hard part.
...
It's only when I start telling you when the decline is going to happen that I'm starting to do something hard.
...
But despite the interesting ideas he brings together I'm not gonna give him credit for predicting a decline when he doesn't get the "when" right.
It's fair to call him wrong about 2021.  But his theory also violated a basic idea on Wall Street: "don't fight the Fed".  If the Fed is giving stimulus, don't predict a crash.  And I think that was not considered by either Mr Grantham or the person interviewing him.

The Fed was literally printing trillions of dollars a year and holding the Fed funds rate at 0%.  How can a massive crash happen during stimulus of that magnitude?  I would point out that government stimulus was a bubble everyone agreed on, and doesn't a crash have to wait for that stimulus to wear out?

In March (2022) the Fed ended QE and issued it's first rate hike.  Those are material differences from the time Mr Grantham predicted a crash, and I think he should have waited instead of fighting the Fed with his theory of a crash.

maizefolk

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #15 on: May 24, 2022, 08:19:52 AM »
I'd like to hear more of what he has to say, but he has not been given that opportunity owing to claiming a crash would start last year (during Fed stimulus - unlikely).

Could you clarify what you mean here? My understanding is that Jeremy has the opportunity to write and post whatever he'd like. Who or how is denying him the opportunity to say whatever he likes or denying you the opportunity to read whatever Jeremy chooses to write?

EvenSteven

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #16 on: May 24, 2022, 08:22:15 AM »
Sure, but the folks who have been dancing in and out for the last 20 or 30 years are still at it. I know lots of people like that.

I don't do shit, and I didn't do shit except buy boring index funds when I had money, and I'm FI and have been for a while. I'm sure my holdings are down right now from the top, and I don't give a rat's ass, because not giving a rat's ass is, weirdly enough, a good way to make money in the long run.

You can beat the market, but listening to people like Jeremy Grantham is not the way to do it.
And back in 2019, I would have agreed with passive investing.  The problem came in Feb 2020 when I predicted 10,000 Covid-19 cases in China days in advance.  Then the day arrived, breaking news... and a small stock market drop.  I had just predicted the future, which is not possible in an efficient market - so I switched to believing the markets were blind to Covid-19.  Ultimately actively stock picking on the theory "stocks recover" was insanely profitable, and allows to me do a lot of screwing up and still be well ahead of where I'd be with indexing.

I think you're also not seeing the distinction I make between listening to Mr Grantham, and simply following whatever he says to do.  I have listened to what he claims, but I don't know if his "super bubble" theory is accurate because I don't know the specific areas of the economy he predicts to be in bubble territory.  I'd like to hear more of what he has to say, but he has not been given that opportunity owing to claiming a crash would start last year (during Fed stimulus - unlikely).

I sometimes have trouble interacting on these topics when we have such a radically different idea about the implications of an efficient market. An efficient market doesn't imply that the market is always "correct," or that someone can't make a trade that is beneficial to themselves.

MustacheAndaHalf

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #17 on: May 24, 2022, 09:08:27 AM »
I'd like to hear more of what he has to say, but he has not been given that opportunity owing to claiming a crash would start last year (during Fed stimulus - unlikely).
Could you clarify what you mean here? My understanding is that Jeremy has the opportunity to write and post whatever he'd like. Who or how is denying him the opportunity to say whatever he likes or denying you the opportunity to read whatever Jeremy chooses to write?
That comment is a mix of things which are not entirely fair:
(1) opportunities meaning air time on CNBC or Bloomberg TV, but he has been given two interviews on Bloomberg TV that I know about this year.
(2) I don't know the specific predictions his "super bubble" theory makes.  I'm partly blaming this on CNBC and Bloomberg TV, who might have already explored this last year.  But I also have not tried to figure this out myself.
(3) I could visit GMO's website ("Let the Wild Rumpus Begin") for more details, but I'm stopped by a registration screen, and I prefer publicly available materials.
https://www.gmo.com/asia/research-library/let-the-wild-rumpus-begin/

Since I have my own view of what happens over the next 12 months based on information I've examined, that has made me less interested in putting effort to discover Mr Grantham's specific predictions.  I wish that information was delivered on news and TV, without having to dig for it.  But I'd be open to reading it if someone else does the digging (that article, above, was my digging).

MustacheAndaHalf

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #18 on: May 24, 2022, 09:11:37 AM »
Sure, but the folks who have been dancing in and out for the last 20 or 30 years are still at it. I know lots of people like that.

I don't do shit, and I didn't do shit except buy boring index funds when I had money, and I'm FI and have been for a while. I'm sure my holdings are down right now from the top, and I don't give a rat's ass, because not giving a rat's ass is, weirdly enough, a good way to make money in the long run.

You can beat the market, but listening to people like Jeremy Grantham is not the way to do it.
And back in 2019, I would have agreed with passive investing.  The problem came in Feb 2020 when I predicted 10,000 Covid-19 cases in China days in advance.  Then the day arrived, breaking news... and a small stock market drop.  I had just predicted the future, which is not possible in an efficient market - so I switched to believing the markets were blind to Covid-19.  Ultimately actively stock picking on the theory "stocks recover" was insanely profitable, and allows to me do a lot of screwing up and still be well ahead of where I'd be with indexing.

I think you're also not seeing the distinction I make between listening to Mr Grantham, and simply following whatever he says to do.  I have listened to what he claims, but I don't know if his "super bubble" theory is accurate because I don't know the specific areas of the economy he predicts to be in bubble territory.  I'd like to hear more of what he has to say, but he has not been given that opportunity owing to claiming a crash would start last year (during Fed stimulus - unlikely).

I sometimes have trouble interacting on these topics when we have such a radically different idea about the implications of an efficient market. An efficient market doesn't imply that the market is always "correct," or that someone can't make a trade that is beneficial to themselves.
There's several version of efficient market hypothesis, but this key takeaway is a decent summary:
"The efficient market hypothesis (EMH) or theory states that share prices reflect all information."
https://www.investopedia.com/terms/e/efficientmarkethypothesis.asp

I used publicly available information to predict an event, and that event caused a stock market drop.  Since the markets did not reflect publicly available information, they were not efficient under the meaning of the efficient market hypothesis.

waltworks

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #19 on: May 24, 2022, 09:20:58 AM »
No, you really did predict the future. If you can do that, of course you can beat the market.

If you had been wrong and Covid had fizzled, though...

-W

EvenSteven

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #20 on: May 24, 2022, 11:27:09 AM »
Sure, but the folks who have been dancing in and out for the last 20 or 30 years are still at it. I know lots of people like that.

I don't do shit, and I didn't do shit except buy boring index funds when I had money, and I'm FI and have been for a while. I'm sure my holdings are down right now from the top, and I don't give a rat's ass, because not giving a rat's ass is, weirdly enough, a good way to make money in the long run.

You can beat the market, but listening to people like Jeremy Grantham is not the way to do it.
And back in 2019, I would have agreed with passive investing.  The problem came in Feb 2020 when I predicted 10,000 Covid-19 cases in China days in advance.  Then the day arrived, breaking news... and a small stock market drop.  I had just predicted the future, which is not possible in an efficient market - so I switched to believing the markets were blind to Covid-19.  Ultimately actively stock picking on the theory "stocks recover" was insanely profitable, and allows to me do a lot of screwing up and still be well ahead of where I'd be with indexing.

I think you're also not seeing the distinction I make between listening to Mr Grantham, and simply following whatever he says to do.  I have listened to what he claims, but I don't know if his "super bubble" theory is accurate because I don't know the specific areas of the economy he predicts to be in bubble territory.  I'd like to hear more of what he has to say, but he has not been given that opportunity owing to claiming a crash would start last year (during Fed stimulus - unlikely).

I sometimes have trouble interacting on these topics when we have such a radically different idea about the implications of an efficient market. An efficient market doesn't imply that the market is always "correct," or that someone can't make a trade that is beneficial to themselves.
There's several version of efficient market hypothesis, but this key takeaway is a decent summary:
"The efficient market hypothesis (EMH) or theory states that share prices reflect all information."
https://www.investopedia.com/terms/e/efficientmarkethypothesis.asp

I used publicly available information to predict an event, and that event caused a stock market drop.  Since the markets did not reflect publicly available information, they were not efficient under the meaning of the efficient market hypothesis.

Price discovery in the market is done through trades, and there is a buyer and a seller on every trade. Either the buyer or the seller will end up being correct about which way the price of that security is going to go. So every trade will have someone correctly predicting the future. This doesn't say anything one way or the other about a markets efficiency.

ChpBstrd

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #21 on: May 24, 2022, 12:03:02 PM »
I really, really don't care about the names of specific people who make comments to financial media outlets in exchange for (a) newsletter clients, (b) hedge fund or investment advising clients, (c) attention economy clients, or (d) narcissistic urges. There is no need for hero worship because almost nobody can out-guess the market sustainably.*

What I do care about are ideas, rationales, facts dug up from faraway places, and connections between facts and concepts. To some extent, the various prophets of our Athens are worth listening to if they can change our mindset or teach us new things. You can learn a lot freeloading off their media interviews, while taking everything with a grain of salt. Not as much as with an actual textbook, but a lot nonetheless.

I subscribe to the Fed Model. In a nutshell, if 10 year treasuries yield X%, then the earnings yield (inverse of PE) on stocks should be X% plus a risk premium. This is certainly an "all else being equal" simplification, and one could make the case that FCF is more important than earnings and I'd agree. Regardless of the details, the point is that when stocks had a PE of 25 and an earnings yield of (1/25=) 4%, something had to give when 10 year treasuries suddenly went from 1.4% to almost 3% in six months. The PE had to fall until there was a big enough risk premium between the EY and the 10Y yield.

Now the PE is 20 instead of 25, and the EY is 5% instead of 4%.

If the gap between Treasuries and EY in November 2021 is our baseline, the risk premium was (4-1.4=) 2.6%. With the EY now at about 5% and the 10y yield now at 2.86%, the risk premium is (5-2.86=) 2.14%.

In other words, despite all this bear market talk, we have still not caught up with the risk premiums that were in place before Russia invaded Ukraine or before we realized inflation would reach highs last seen in the Volker era. One would think the risk premium would expand in uncertain times like these, not contract.

Now I think it's safe to assume that the next two Fed meetings (June and July instead of skipping a month) will involve 0.5% rate hikes, even if inflation starts to taper downward. Let's assume the 10y yield is about to rise to 3.86% by the end of summer, or September at the latest. If we add on a 2.5% risk premium, then the EY on stocks would need to be (3.86+2.5=) 6.36%. That translates to a PE of about (1/6.36=) 16, and the Fed may still have further to hike from there because inflation is unlikely to be lower than 5-6% three or four months from now! Even if prices flatlined, they'd still be at least that much higher than 12 months earlier. 

Fiddle with the details all you want, the result will remain that valuations have to fall 10-30% from here if the already announced series of rate hikes happen. Earnings growth may help keep stock prices higher than the drop in valuations, but recession talk will likely take the wind out of that sail.

Plus, a few months from now inflation, or the interest rate path, could be even worse than what's priced in today.

ON THE FLIPSIDE - and you should always think hard about the flipside - the PCE numbers that come out Friday could show significant improvement, China could give up on lockdowns any day, Ukraine could agree to let the Russians keep Donbas and Crimea in exchange for a ceasefire, the USD could strengthen against the Euro and Yen, the rate of QT could be increased, COVID could come back and suppress monetary velocity, and oil prices could collapse just like metal prices have collapsed.

What looks like a no-brainer bet on stocks going down could reverse into a ferocious bear rally, and for this reason I'm not as bold as @MustacheAndaHalf who is going short with leverage. I think you'll win, but I'm not sure I want to bet my financial life on it. I'm doing deep-ITM covered calls on short ETFs with part of my AA and keeping a large percentage in cash. The other reason I'm less bold is because bear markets are typically brief (see 12/2018), even if all signs point to this year being a repeat of 2000, minus the rate cuts to rescue us.

Something I'm keeping in mind is this: I don't necessarily have to hit a home run with leveraged short bets in 2022. If my portfolio is merely intact 12 months from now, I might be able to retire at valuations that allow for 5% withdraw rates. Still kicking myself for not buying PFF when the yield was 7.5% in April, 2020.

*although there are cases where one out of thousands of New York City money managers manages to outperform the market for multiple years in a row - even decades - but that outcome is to be expected in a statistical sense, just like heads heads heads heads heads is a coin flip series that will come up by chance if you flip the coin enough times, and means nothing about the next flip. 

MustacheAndaHalf

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #22 on: May 24, 2022, 02:11:24 PM »
I want to discuss several points you brought up, but if I sound like I'm nit picking please call me on it - that's not my intent.  I want a discussion where I may have to change my view.

To some extent, the various prophets of our Athens are worth listening to if they can change our mindset or teach us new things. You can learn a lot freeloading off their media interviews, while taking everything with a grain of salt. Not as much as with an actual textbook, but a lot nonetheless.
Of the investment books I've read, I'm not sure how many qualify as textbooks - could you give some examples of what you mean?


I subscribe to the Fed Model. In a nutshell, if 10 year treasuries yield X%, then the earnings yield (inverse of PE) on stocks should be X% plus a risk premium. This is certainly an "all else being equal" simplification, ...
By Fed Model, you mean "Federal Reserve" model?  I've never seen the Fed discuss earnings yield of stocks or P/E ratios for that matter.  Is there anything from Fed Chair Powell which mentions this in his 4 years at the Fed?


The PE had to fall until there was a big enough risk premium between the EY and the 10Y yield.
I've heard "risk premium" mostly mentioned by academic studies and in Larry Swedroe's books.  I believe it can turn negative, an example being 2022 YTD, where cash has beaten stocks.


If the gap between Treasuries and EY in November 2021 is our baseline, the risk premium was (4-1.4=) 2.6%. With the EY now at about 5% and the 10y yield now at 2.86%, the risk premium is (5-2.86=) 2.14%.

In other words, despite all this bear market talk, we have still not caught up with the risk premiums that were in place before Russia invaded Ukraine or before we realized inflation would reach highs last seen in the Volker era. One would think the risk premium would expand in uncertain times like these, not contract.
On CNBC today, Josh Brown talked of how extreme sentiment has been for a long time, with CNN's Fear & Greed Index being one way to measure that.
https://edition.cnn.com/markets/fear-and-greed

Another guage of fear, the ^VIX (volatility index of S&P 500) has been in an oddly tight range around 25-32 for weeks.  It's not spiking to levels you might expect in a crash, not does volatility calm down to reflect things have improved.  I think the market is wearing people down, rather than crashing dramatically.
https://finance.yahoo.com/quote/%5EVIX/


Now I think it's safe to assume that the next two Fed meetings (June and July instead of skipping a month) will involve 0.5% rate hikes, even if inflation starts to taper downward ... the Fed may still have further to hike from there because inflation is unlikely to be lower than 5-6% three or four months from now!
In terms of predicting the Fed, I've been mistaken in using CPI-U inflation.  As you mention later, the Fed prefers "Core PCE" inflation, which has risen been: 6.0% Jan, 6.3% Feb, 6.6% Mar ... and April due this Friday.  I believe there's a strong correlation between CPI-U and PCE, so from that I believe Core PCE will remain strong.
https://www.bea.gov/data/personal-consumption-expenditures-price-index

An odd point: "Core PCE" excludes energy and food, which would make it a terrible measure during the oil embargo 50 years ago, and not a great choice now with two major energy and food producers being at war.  I hope the Fed looks at both CPE and Core CPE.


Fiddle with the details all you want, the result will remain that valuations have to fall 10-30% from here if the already announced series of rate hikes happen. Earnings growth may help keep stock prices higher than the drop in valuations, but recession talk will likely take the wind out of that sail.
Two well run retailers, Walmart and Target, both had massive misses on earnings.  Walmart down -20% in a week, Target -25% in a day.  I liked the back & forth between Scott Wapner ("the Judge") and Steve Liesman (Fed expert).  Mr Liesman pointed out the strength of travel, so the Judge pointed to weakness in retail.  Mr Liesman brought up that consumer goods are 30% of the economy, versus services the other 70%.  I wished they had dug into that other 70% ... but it's a fair point to claim goods can fall separately from services.


ON THE FLIPSIDE - and you should always think hard about the flipside - the PCE numbers that come out Friday could show significant improvement, China could give up on lockdowns any day, Ukraine could agree to let the Russians keep Donbas and Crimea in exchange for a ceasefire, the USD could strengthen against the Euro and Yen, the rate of QT could be increased, COVID could come back and suppress monetary velocity, and oil prices could collapse just like metal prices have collapsed.
I see many people speculate about a ceasefire without projecting past it.  Plenty of evidence points to killing of civilians by Russian soldiers.  Will the U.S. and Europe just drop sanctions after the war?  My answer is no, that even the end of a war doesn't normalize energy & food markets (and prices).

I haven't researched it well, but believe China has low vaccination rates.  I don't know if their vaccines are comparable to AZ or not, but I doubt it's anywhere near the effectiveness of Pfizer & Moderna.  If they reopen, hospitals get overwhelmed.  I also vaguely believe China's government made this a point of national pride, which makes them even more cautious.  Finally, Covid-19 has surged back in the U.S., and could easily surge in China again if lockdowns are lifted.

I'm not sure I follow the other points: USD has already strengthened against the Euro and Yen, to historically wide spreads.  QT, being the reverse of QE, acts like more rate hikes at specific points on the yield curve.  It removes cash from the bond markets, which makes money harder to find, and "tigher" financial conditions.  Good for bond yields, not so good for stock prices.


What looks like a no-brainer bet on stocks going down could reverse into a ferocious bear rally, and for this reason I'm not as bold as @MustacheAndaHalf who is going short with leverage. I think you'll win, but I'm not sure I want to bet my financial life on it. I'm doing deep-ITM covered calls on short ETFs with part of my AA and keeping a large percentage in cash. The other reason I'm less bold is because bear markets are typically brief (see 12/2018), even if all signs point to this year being a repeat of 2000, minus the rate cuts to rescue us.
I reached a point where I was overconfident and viewing things as a "no brainer", but I considered that dangerous and tried to find a solution.  Remembering Annie Duke's "Thinking in Bets", I thought about my stock market prediction as a bet.

If I predict the S&P 500 will fall 20% or more from here over the next 12 months, would you bet against that?  What if you had 2:1 odds (you bet $20, bookie puts in $40, winner take all)?  If I'm willing to offer someone that 2:1 bet, I'm probably more than 67% confident (2 of 3).  But I avoid 4:1 (risk 100% for +25% gain?), so call that 75% confidence.

Since all I said was a crash, I can wrap two ideas in one: high, persistent inflation crashes the market... or, the longest bull market is increasingly likely to end in a bear market.  The business cycle may start with growth, but also includes the destruction of companies that lack access to cash (no profits, struggle to raise cash - original freudian slip "stuggle to raise crash").


Something I'm keeping in mind is this: I don't necessarily have to hit a home run with leveraged short bets in 2022. If my portfolio is merely intact 12 months from now, I might be able to retire at valuations that allow for 5% withdraw rates. Still kicking myself for not buying PFF when the yield was 7.5% in April, 2020.
Using -3x ETFs, I hold -100% stocks and -50% bonds, which tend to be uncorrelated in these markets.  I mostly have small gains or losses, until the Fed pushes both stocks and bonds down.  I'm lumping SARK as a -3x ETF despite lacking leverage.  If 2022 recovers, I was wrong and I sell these and ease back into the market.  I can afford to lose that fraction of my NW - but more importantly, I'm prepared to do it.  I have no mercy for a losing investment strategy, even if it's mine.

Unlike 2020-2021 where I spotted Covid-19 in the news, this time around I had the fortune or bad luck to be invested in risky stocks, which caused me to get fed up (Fed up?) with taking losses.  I moved out of crypto & call options (Dec), then went to 1/3rd equities and inverse bonds (Mar), and finally just went with 0% equities and SPY puts (early April).  In May I pushed into an actual inverse ETF position, which I currently hold.


*although there are cases where one out of thousands of New York City money managers manages to outperform the market for multiple years in a row - even decades - but that outcome is to be expected in a statistical sense, just like heads heads heads heads heads is a coin flip series that will come up by chance if you flip the coin enough times, and means nothing about the next flip.
I believe professional managers aren't allowed to invest like I do.  As one put it, "cash looks really good right now, but I don't get paid to invest in cash".  I think the funds they run dictate terms of their investment strategy.  Although active managers do best (against index funds) in bear markets, they can't flip to 100% cash per the terms of their fund.

ChpBstrd

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #23 on: May 24, 2022, 09:39:17 PM »
I want to discuss several points you brought up, but if I sound like I'm nit picking please call me on it - that's not my intent.  I want a discussion where I may have to change my view.

To some extent, the various prophets of our Athens are worth listening to if they can change our mindset or teach us new things. You can learn a lot freeloading off their media interviews, while taking everything with a grain of salt. Not as much as with an actual textbook, but a lot nonetheless.
Of the investment books I've read, I'm not sure how many qualify as textbooks - could you give some examples of what you mean?

I'm thinking about the old grad school textbooks still on my shelf, such as Accounting, What The Numbers Mean by Marshall et. al, and Options, Futures, and Other Derivatives by John C. Hull, which is not an easy read. They're probably $10 each on eBay. Unfortunately I got rid of my macroecon book.
Quote

I subscribe to the Fed Model. In a nutshell, if 10 year treasuries yield X%, then the earnings yield (inverse of PE) on stocks should be X% plus a risk premium. This is certainly an "all else being equal" simplification, ...
By Fed Model, you mean "Federal Reserve" model?  I've never seen the Fed discuss earnings yield of stocks or P/E ratios for that matter.  Is there anything from Fed Chair Powell which mentions this in his 4 years at the Fed?

https://www.investopedia.com/terms/f/fedmodel.asp
https://en.wikipedia.org/wiki/Fed_model
Quote

The PE had to fall until there was a big enough risk premium between the EY and the 10Y yield.
I've heard "risk premium" mostly mentioned by academic studies and in Larry Swedroe's books.  I believe it can turn negative, an example being 2022 YTD, where cash has beaten stocks.

Investors should demand higher returns in exchange for the extra risk they are taking with stocks as compared to risk-free investments. Thus, high valuations were excused in the past few years because "TINA" to very low treasury yields. We can no longer take very low treasury yields for granted.
Quote

If the gap between Treasuries and EY in November 2021 is our baseline, the risk premium was (4-1.4=) 2.6%. With the EY now at about 5% and the 10y yield now at 2.86%, the risk premium is (5-2.86=) 2.14%.

In other words, despite all this bear market talk, we have still not caught up with the risk premiums that were in place before Russia invaded Ukraine or before we realized inflation would reach highs last seen in the Volker era. One would think the risk premium would expand in uncertain times like these, not contract.
On CNBC today, Josh Brown talked of how extreme sentiment has been for a long time, with CNN's Fear & Greed Index being one way to measure that.
https://edition.cnn.com/markets/fear-and-greed

Another guage of fear, the ^VIX (volatility index of S&P 500) has been in an oddly tight range around 25-32 for weeks.  It's not spiking to levels you might expect in a crash, not does volatility calm down to reflect things have improved.  I think the market is wearing people down, rather than crashing dramatically.
https://finance.yahoo.com/quote/%5EVIX/

Yes, one issue with efficient markets hypothesis is how can we explain the stickiness of past prices? The anchoring fallacy? I've seen again and again where the market takes weeks to digest new information, as it did with high inflation numbers and warnings of rising interest rates in Fall-Winter 2021.
Quote

Now I think it's safe to assume that the next two Fed meetings (June and July instead of skipping a month) will involve 0.5% rate hikes, even if inflation starts to taper downward ... the Fed may still have further to hike from there because inflation is unlikely to be lower than 5-6% three or four months from now!
In terms of predicting the Fed, I've been mistaken in using CPI-U inflation.  As you mention later, the Fed prefers "Core PCE" inflation, which has risen been: 6.0% Jan, 6.3% Feb, 6.6% Mar ... and April due this Friday.  I believe there's a strong correlation between CPI-U and PCE, so from that I believe Core PCE will remain strong.
https://www.bea.gov/data/personal-consumption-expenditures-price-index

An odd point: "Core PCE" excludes energy and food, which would make it a terrible measure during the oil embargo 50 years ago, and not a great choice now with two major energy and food producers being at war.  I hope the Fed looks at both CPE and Core CPE.

I'm honestly not sure what to expect on Friday, so I may sit it out. A LOT of stimulus has been withdrawn in the past few months, so in theory we'll see an effect of that soon. I suppose we have to look at the pace of inflation increases in the past to figure out the potential pace of inflation declines in the present.
Quote

Fiddle with the details all you want, the result will remain that valuations have to fall 10-30% from here if the already announced series of rate hikes happen. Earnings growth may help keep stock prices higher than the drop in valuations, but recession talk will likely take the wind out of that sail.
Two well run retailers, Walmart and Target, both had massive misses on earnings.  Walmart down -20% in a week, Target -25% in a day.  I liked the back & forth between Scott Wapner ("the Judge") and Steve Liesman (Fed expert).  Mr Liesman pointed out the strength of travel, so the Judge pointed to weakness in retail.  Mr Liesman brought up that consumer goods are 30% of the economy, versus services the other 70%.  I wished they had dug into that other 70% ... but it's a fair point to claim goods can fall separately from services.


ON THE FLIPSIDE - and you should always think hard about the flipside - the PCE numbers that come out Friday could show significant improvement, China could give up on lockdowns any day, Ukraine could agree to let the Russians keep Donbas and Crimea in exchange for a ceasefire, the USD could strengthen against the Euro and Yen, the rate of QT could be increased, COVID could come back and suppress monetary velocity, and oil prices could collapse just like metal prices have collapsed.
I see many people speculate about a ceasefire without projecting past it.  Plenty of evidence points to killing of civilians by Russian soldiers.  Will the U.S. and Europe just drop sanctions after the war?  My answer is no, that even the end of a war doesn't normalize energy & food markets (and prices).

I haven't researched it well, but believe China has low vaccination rates.  I don't know if their vaccines are comparable to AZ or not, but I doubt it's anywhere near the effectiveness of Pfizer & Moderna.  If they reopen, hospitals get overwhelmed.  I also vaguely believe China's government made this a point of national pride, which makes them even more cautious.  Finally, Covid-19 has surged back in the U.S., and could easily surge in China again if lockdowns are lifted.

I'm not sure I follow the other points: USD has already strengthened against the Euro and Yen, to historically wide spreads.  QT, being the reverse of QE, acts like more rate hikes at specific points on the yield curve.  It removes cash from the bond markets, which makes money harder to find, and "tigher" financial conditions.  Good for bond yields, not so good for stock prices.

Yes, from what I've read the traditionally produced Sinovac vaccine has a similar efficacy as a single dose of the J&J shot. Then again, I've learned that US media has a very distorted view of foreign countries. When one actually travels, one finds the facts on the ground are completely different than one was ever led to believe. So I take it with a grain of salt when some Western paid-by-the-click writer claims to know something about vaccination rates in China.
Quote

What looks like a no-brainer bet on stocks going down could reverse into a ferocious bear rally, and for this reason I'm not as bold as @MustacheAndaHalf who is going short with leverage. I think you'll win, but I'm not sure I want to bet my financial life on it. I'm doing deep-ITM covered calls on short ETFs with part of my AA and keeping a large percentage in cash. The other reason I'm less bold is because bear markets are typically brief (see 12/2018), even if all signs point to this year being a repeat of 2000, minus the rate cuts to rescue us.
I reached a point where I was overconfident and viewing things as a "no brainer", but I considered that dangerous and tried to find a solution.  Remembering Annie Duke's "Thinking in Bets", I thought about my stock market prediction as a bet.

If I predict the S&P 500 will fall 20% or more from here over the next 12 months, would you bet against that?  What if you had 2:1 odds (you bet $20, bookie puts in $40, winner take all)?  If I'm willing to offer someone that 2:1 bet, I'm probably more than 67% confident (2 of 3).  But I avoid 4:1 (risk 100% for +25% gain?), so call that 75% confidence.

Since all I said was a crash, I can wrap two ideas in one: high, persistent inflation crashes the market... or, the longest bull market is increasingly likely to end in a bear market.  The business cycle may start with growth, but also includes the destruction of companies that lack access to cash (no profits, struggle to raise cash - original freudian slip "stuggle to raise crash").

It cost me tens of thousands of dollars to learn that my personality features a high need for closure. I.e. I like to look at lots of information, make a decision, and get 100% behind that plan. This one cognitive trait could wipe me out if I put all my eggs in one basket, as proven by smaller bets that I lost after having absolute conviction.

I also have a high degree of trust in evidence and reason, which is dangerous when markets swing around due to causes unrelated to the quality of the underlying assets, or when the facts on the ground change and there I was invested based on the old information.

So I force myself to do something unnatural when I play devil's advocate with myself. I talk myself down from bold bets whenever I can. I keep a log of bets I would make with absolute certainty if I were a gambler, and I revisit it to discover that about half of these bets would have been losses. This keeps my tendencies in check.

Also, I KNOW I can win the long-term game UNLESS I lose everything in the short-term game. That strategic fact holds me back from making big WSB-style bets. WSB loss porn is also great, because it's like witnessing people self-destruct due to social influence, and then you see yourself in them. Terrifying. Utterly terrifying.
Quote

Something I'm keeping in mind is this: I don't necessarily have to hit a home run with leveraged short bets in 2022. If my portfolio is merely intact 12 months from now, I might be able to retire at valuations that allow for 5% withdraw rates. Still kicking myself for not buying PFF when the yield was 7.5% in April, 2020.
Using -3x ETFs, I hold -100% stocks and -50% bonds, which tend to be uncorrelated in these markets.  I mostly have small gains or losses, until the Fed pushes both stocks and bonds down.  I'm lumping SARK as a -3x ETF despite lacking leverage.  If 2022 recovers, I was wrong and I sell these and ease back into the market.  I can afford to lose that fraction of my NW - but more importantly, I'm prepared to do it.  I have no mercy for a losing investment strategy, even if it's mine.

Unlike 2020-2021 where I spotted Covid-19 in the news, this time around I had the fortune or bad luck to be invested in risky stocks, which caused me to get fed up (Fed up?) with taking losses.  I moved out of crypto & call options (Dec), then went to 1/3rd equities and inverse bonds (Mar), and finally just went with 0% equities and SPY puts (early April).  In May I pushed into an actual inverse ETF position, which I currently hold.

As I noted earlier, when you make big and bold short-term bets, you risk losing a long-term game that is completely winnable. So the case has to be really damn good to take that chance. The flipside to winning another two years of youthful retirement is possibly having to work another 5-10. That strategic reality humbles me, believe it or not, despite my existing arrogance!

Another way to say it... why gamble when you can win the long game without gambling?

I'm only partially short and mostly in cash because these conditions look sooooo freaking bad to me as a Y2K and 2008 survivor.
Quote

*although there are cases where one out of thousands of New York City money managers manages to outperform the market for multiple years in a row - even decades - but that outcome is to be expected in a statistical sense, just like heads heads heads heads heads is a coin flip series that will come up by chance if you flip the coin enough times, and means nothing about the next flip.
I believe professional managers aren't allowed to invest like I do.  As one put it, "cash looks really good right now, but I don't get paid to invest in cash".  I think the funds they run dictate terms of their investment strategy.  Although active managers do best (against index funds) in bear markets, they can't flip to 100% cash per the terms of their fund.

Yes, most funds have a set profile that can't be changed. The era of wildcatter mutual fund and hedge fund managers who could dance in and out of long and short positions is probably over, due to index funds and the scale of most hedge funds.

Still you have the occasional Peter Lynch or Jim Rogers, and this result is expected because tens of thousands of people work in the industry and most fail.

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #24 on: May 25, 2022, 09:32:43 AM »
@ChpBstrd - Our back and forth reads a bit choppy, so I'll try replying in one block.

A Chinese government official claimed the vaccine wasn't effective (maybe in 2021?) and retracted the comment.  Given the lack of information from China, I viewed that as a moment of truth.  China did not, to my knowledge, release data on the effectiveness of it's vaccine.  It might not be that relevant, if only half of people over age 80 are vaccinated there (certainly the most vulnerable).
https://www.bloomberg.com/news/articles/2022-03-18/only-half-of-chinese-aged-80-and-older-are-fully-vaccinated

For the several weeks I was just observing market views + data and not really putting pieces together - I'm not really concerned with closure.  I discovered my approach to investing several years ago watching many people chase performance.  It annoyed me, and lead me to use a disclined approach (momentum) to take advantage of the undisciplined performance chasing.  Annoyance showed me what was wrong.

Momentum is also the biggest flaw in efficient markets.  Academic legends Fama & French refused to consider it for many years (even though it shows up more frequently and has a strong effect).  Where other factors revealed fundamental risks, momentum didn't fit - it's just price moves.

When the market pisses me off, my goal is to prove the market wrong.  That gives me focus on a goal that (in 2020 and 2022) was/is more than a year away.  I'm going after a market flaw - data the market refuses to accept, which gives me an information advantage.  With Covid-19, I spotted it long before the markets, which refused to even take the hint from the Fed on Mar 8 2020.  To me, markets going up Mar 10 2020 was one of the dumbest things I've ever seen.

From Dec 2021 to May 2022 my approach and allocation has shifted incrementally.  I suppose I start with a mild annoyance that grows:

Dec: sold calls & crypto owing to uncertainty (inflation 7%, Covid-19)
Mar: drop to 1/3rd "value" tilt equities, small position gives significant profits
Apr: reach 0% equities, mostly cash.  Buy SPY put options at various tiers.
May: inverse stock/bond mix, short crypto stocks

At some point I should track down why I thought wage inflation was low single digits, because I now have multiple sources putting it in the 6-11% range (one being BofA CEO Monihan).  The 6% for hourly workers, and 11% overall.  It's a dangerous feedback loop already running at full steam - I believe wage inflation, by itself, could sustain overall inflation.  I thought this was a common theme running through persistent inflation, but maybe I'll need to confirm that.

Did you know the S&P 500 doubled from 2019-2021?  And yet most people say the bull market ended in March 2020, in the middle of that doubling.  By being more flexible with my definitions, I see things the market has written off.  I can view 2009-2021 as the longest bull market in history - with it's worst year of -4.5% being 2018.  This isn't just being flippant about March 2020, either - the market crashed, but that crash was stopped by government stimulus.  Everyone entered a bubble of financial protection, provided by Congress & The Fed, from the impact of lockdowns.  But that also prevented every aspect of a bear market from taking place - bankruptcies were down, not up!  When I see something like this, I'll look for other pieces of information to see how they confirm or deny the overall thesis.

My expectation is possible volatility for the next couple months, then massive volatility in Sept-Dec as inflation becomes undeniable.

ChpBstrd

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #25 on: May 25, 2022, 11:04:49 AM »
@MustacheAndaHalf here's some information about the Sinovac vaccine, from the WHO:

https://www.who.int/news-room/feature-stories/detail/the-sinovac-covid-19-vaccine-what-you-need-to-know

Key quote on efficacy:
Quote
How efficacious is the vaccine?

A large phase 3 trial in Brazil showed that two doses, administered at an interval of 14 days, had an efficacy of 51% against symptomatic SARS-CoV-2 infection, 100% against severe COVID-19, and 100% against hospitalization starting 14 days after receiving the second dose.

Does it work against new variants of SARS-CoV-2 virus?

In an observational study, the estimated effectiveness of Sinovac-CoronaVac in health workers in Manaus, Brazil, where P.1 accounted for 75% of SARS-CoV-2 samples was 49.6% against symptomatic infection (4). Effectiveness has also been shown in an observational study in Sao Paulo in the presence of P1 circulation (83% of samples).

There are still insufficient data for Omicron.

So it looks like China has a decent vaccine, unless the government there knows something about its efficacy against Omicron that we don't know. More likely, the government would rather take its chances against social unrest, which they know how to suppress, rather than a virus running rampant, which could cause unpredictable cascading effects leading to a palace coup, internal strife, shifting alliances, etc.

Additionally, China has a very high vaccination rate - 87% fully vaxxed.
https://ourworldindata.org/covid-vaccinations?country=CHN

As for the people in China, they can be pissed about the restrictions even after they've had their shots, but at least they're alive, unlike over a million US citizens. According to the data they've only had a death and increased mortality of 10 per million people since the pandemic started as opposed to numbers in the 3,000+ range for the US and Brazil (same site, switch drop-down to deaths and excess mortality). We may not like how they're doing it, but they're winning the pandemic and our methods have sucked.

WRT wage inflation, you may have been thrown off by a big dip in April 2021, and the fact that wage inflation didn't increase above 5% YoY until October 2021 (set chart to % change in the past year). In terms of dollars per hour or the index scales, the chart gives the impression that we just returned to a baseline (set chart to dollars per hour or index scale). The same data can leave one with the impression that things are fine or chaos is breaking out, depending upon presentation.



Momentum has been demonstrated to be a real effect. The problem is how do you bet on momentum without losing all your gains when the momentum changes? As a crude example of the dilemma, consider a gambler making a double-or-nothing monthly bet on a momentum trend that has six months remaining. They get rich in months 1-5 and then lose everything in month 6.

This is still an issue if you don't play double-or-nothing, and instead make smaller bets. Any series of bets eventually results in a loss, so what's needed is a strategy that allows you to keep some of the winnings after the loss has occurred. E.g. estimate the average duration of such trends and size your monthly bet by the expected duration of the trend. E.g. 6 month trend = bet 1/6th of the amount available to gamble each month and seek a return during months 1-5 greater than the loss of 1/6th at the end. Even then, gains from the momentum effect may or may not cover the loss when the trend ends at an unpredictable time, as all trends do. Perhaps the difficulty of executing such trading strategies is why the momentum effect persists, even as other advantages such as SCV or "sell in May and go away" type rules have been arbitraged away.

MustacheAndaHalf

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #26 on: May 25, 2022, 06:20:47 PM »
There is virtually no chance China's reported an accurate death toll.  China turned away uncounted numbers without testing them, while uncounted others died at home.  Back in 2020, Chinese cities were cremating bodies 24 hours a day, which didn't match claims by China's government.  So if you plan on trusting China's numbers, we're going to have to agree to disagree.

Note I quoted an article saying half of 80+ year olds were vaccinated, while you quoted the overall number vaccinated.  I studied Covid-19 in 2020, not now, so I'll quote old data from the original virus:  young people had a roughly 1 in 500 chance of dying while the oldest age group had a 1 in 6 chance.  That 100x difference meant that vaccinating old people was 100x more important.  Omicron is milder, but it's still vaccination of old people that matters most.

Back in 2020, Dr Fauci hoped for a vaccine that was at least 50% effective.  If Brazil's study reports 50% effectiveness, that's barely acceptable - not decent.
 When Pfizer came out as 90-95% effective and Moderna reported the same, that was a stunning achievement.  AZ lagged behind at around 75%, but prevented hospitalization and death.  All that said, this is a bit misleading - we should focus on preventing hospitalization and death, which the Brazil study shows a 100% success rate for both.  Sinovac is barely acceptable at preventing Covid-19, but is incredibly effective at preventing hospitalization and death.  All of which should be suffixed with "for a certain amount of time", which is why people are receiving a total of 3-4 shots of vaccine, and not just 2 - the age of the vaccination also matters.

In 2022, China is using a "Covid zero" strategy of entirely locking down major cities.  That's not considered a success.  It's hurting China's growth for the year, and causing those who depend on products made in China to consider diversifying to other suppliers.  The cases seem to be falling dramatically in China, so my guess is that Covid zero may be lifted.  But if they haven't vaccinated over 90% of people over age 80, reopening could still be a disaster.
https://www.worldometers.info/coronavirus/country/china/

China took their 2020 success as representing their government was superior to other governments.  The WHO praised China, and specifically their government - does that mean democracies should stop electing leaders and follow China's approach?  I view "Covid Zero" as a failure, perhaps stemming from overconfidence and a lack of vaccinations - which also happens in democracies that did well early on (including the one which will make WHO representatives hang up on an interview).

But next, I expect China to reopen, which eases pressure on supply chains, and will give a boost to markets.  China reopening plays to the idea inflation will drop on it's own, which feeds the belief the bear market is ending.  As I mentioned above, I think that ignores dynamics like wage inflation and full bank accounts that can keep demand excessive beyond the ability of China to keep up.  But poor conditions in Europe are helping ease demand, so maybe there's room for the markets to run up before inflation rears it's head again.

MustacheAndaHalf

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #27 on: May 25, 2022, 06:42:21 PM »
I'd like to revisit something for two reasons: one to show how I approach markets, and two to show some flawed information.

Didn't he also suggest avoiding stocks in 2013? Didn't his fund, GMO, go bearish in 2016 and miss out on a lot of gains?

He's a permabear. Of course he's going to be right eventually.

Quote from: https://www.cbsnews.com/news/who-are-the-most-least-accurate-stock-gurus/
Jeremy Grantham, Chairman of GMO LLC, a global investment management firm. His score was 48 percent.
Yeah. I think a better analogy than Cassandra is a stopped clock.

Pretend for a moment these two posters represent a significant number of investors, call them coin-avoiders.  Let me pretend I keep hearing a quote like "Mr Grantham is a coin flip, and I don't invest in coin flips" (which I made up).  So a chunk of the market ignores Mr Grantham - what do I know about him?

He was listed as one of the most influential investors of all time by Forbes, has called all the major bubbles in the past 40 years, and has stayed in the investing business for that long.  It sounds like he should be an expert, and that I should expect he has above average performance.

Which view is right?  Just to summarize, some poster/investor points out Mr Grantham is a coin flip, others agree, and yet Mr Grantham's track record is supposedly exceptional.  So I need a theory, both for this thread or for seeing opinions reach consensus in the market.

The guru score doesn't mention performance, which is odd, because investors care about performance.  From there, I realized the flaw in the guru score, so let me take a hypothetical example to explain.

If someone is only right one in three times, their guru score would be 33%, which marks them as terrible - well below average, and worse than most on the list.  Going by the guru score, you would want to avoid this person - unless the score was flawed.

Let's say this guru shifted 10% to cash when they were wrong, but 67% to cash when they were right.  Using a cash weighted or portfolio weighted measure, there's a total of 87% moved with 67% right.  In dollar terms, they were right 3 times as often as they were wrong - now they're looking far more successful than average.

When wrong, let's say they gave up after the markets moved up 1% instead of dropping, leaving 10% of their portfolio 1% behind the market, for a -0.1% gap with each of these two wrong decisions.  These decisions were essentially noise.  But their right decision with 2/3rds of their portfolio... what if the market dropped in half, they invested, and then a recovery occurred (exaggerated for purposes of this hypothetical)?  Their 2/3rds turned into 4/3rds, in addition to the 1/3rd they left invested:  5/3rds or beating the market by about +66.7%.  If you add up their actions, this guru winds up +66.5% ahead of the market.

So by guru score, 1 in 3 right, or 33%.
By cash weight, right 3x as much as wrong, call that 75% right.
By performance, beating the market by +66.5%.

So I view the guru score as flawed - an attempt to replicate fact checking in the investment world.  If someone cites history, they're right or wrong about factual information.  But investors apply different levels of confidence and risk in their predictions, which is not reflected.

I could predict "markets volatile after Fed meeting" over and over and have a very high guru score.  But I made a low risk, obvious prediction - it's not worth much.  If Mr Grantham predicts the global financial crisis in advance, avoiding -50% losses, that's something almost nobody saw in advance and represents a huge loss avoidance.  Yet if he says it early, he gets faulted for being wrong (which is fair), without considering the risk or obviousness of the prediction.

Hopefull you saw me both answer the question of guru scores, but also see how this could happen in the markets.  Certainly markets in 2000 before the dot-com crash were not accurate or efficient, but it at least proves markets can form a herd that moves into an incorrect view.  When that kind of view becomes important enough to examine, I try and form a view based on experts and data.  My favorite place to be is far away from the markets, backed by both experts and data (like in March 2020, before markets crashed Mar 16-20).

waltworks

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #28 on: May 25, 2022, 08:52:08 PM »
Have fun, dude.

I played the long game and retired after a ~15 year "career". Maybe Jeremy Grantham should call me up for some tips.

-W

ChpBstrd

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #29 on: May 25, 2022, 09:06:33 PM »
Yea, the problem with discerning the wisdom of any guru is that:

a) You don't even know if they're being honest, or if they're exiting the positions they're hyping, like a pump and dump scam.

b) They don't typically elaborate their predictions with a level of confidence, or a level of investment. E.g. If they think energy stocks will continue doing well for the next 12 months, are they investing on that insight at all? Are they increasing their allocation from 1% to 2%? Or are they going all in - 100% of assets in energy stocks. I suggest being wrong (or right) should only count to the extent they actually wagered money they were responsible for, as @MustacheAndaHalf noted.

c) You can't typically see how they actually deployed their money. I.e. were they totally convinced and went all-in, or did they do a $5,000 trade?

d) It's hard to figure out the timing of the comment. Did they talk to the financial journalist the day before the article came out, or two weeks before? The market might have done crazy things by then, or they might have changed their view by the time you're reading the article.

MustacheAndaHalf

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #30 on: May 26, 2022, 11:48:37 AM »
Have fun, dude.

I played the long game and retired after a ~15 year "career". Maybe Jeremy Grantham should call me up for some tips.
Because you invest in index funds?  Jeremy Grantham was describing index funds more than 50 years ago - before Vanguard founder Jack Bogle started an index fund.  So no, a billionaire investor with decades of experience doesn't need tips from someone who followed his ideas decades afterwards.

"Jeremy Grantham and Dean LeBaron at Batterymarch Financial Management "described the idea at a Harvard Business School seminar in 1971, but found no takers until 1973. Two years later, in December 1974, the firm finally attracted its first index client."
"Bogle started the First Index Investment Trust on December 31, 1975"
https://en.wikipedia.org/wiki/Index_fund

MustacheAndaHalf

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #31 on: May 26, 2022, 11:57:11 AM »
Yea, the problem with discerning the wisdom of any guru is that:

a) You don't even know if they're being honest, or if they're exiting the positions they're hyping, like a pump and dump scam.

b) They don't typically elaborate their predictions with a level of confidence, or a level of investment. E.g. If they think energy stocks will continue doing well for the next 12 months, are they investing on that insight at all? Are they increasing their allocation from 1% to 2%? Or are they going all in - 100% of assets in energy stocks. I suggest being wrong (or right) should only count to the extent they actually wagered money they were responsible for, as @MustacheAndaHalf noted.

c) You can't typically see how they actually deployed their money. I.e. were they totally convinced and went all-in, or did they do a $5,000 trade?

d) It's hard to figure out the timing of the comment. Did they talk to the financial journalist the day before the article came out, or two weeks before? The market might have done crazy things by then, or they might have changed their view by the time you're reading the article.
I disagree with (a).  A professional investor publicly doing a pump and dump scheme would be sued by people who got tricked, and could go up to the SEC.  They could be banned from the industry and even face jail time.  I would start with the assumption that doesn't happen.

But that said, (b) is important.  I believe hedge funds have to report their public stocks quarterly, so if someone combined that with guru scores, it could be more valuable.  But they probably avoid giving exact percent and investment decisions because that's why people pay them.  Maybe that could change, given how ETFs are fully transparent but also profitable.

EvenSteven

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #32 on: May 26, 2022, 12:06:29 PM »
If the Guru runs a fund, you don't need to interpret or try and pick apart their public statements, you can just look at their actual performance. Casandra knew the future. How have the GMO funds performed over the last 25 years?

MustacheAndaHalf

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #33 on: May 26, 2022, 12:44:10 PM »
If the Guru runs a fund, you don't need to interpret or try and pick apart their public statements, you can just look at their actual performance. Casandra knew the future. How have the GMO funds performed over the last 25 years?
I agree, which was my point above.  For Cassandra, though, there was also a curse where nobody would believe her, which is why I picked it as the title.

There's a morningstar fund by GMO, but I had trouble finding a good comparable fund.  You could pursue that path if you like - I'm biased, so the following article is a biased result.  I like that it captures 3 things: underperformance by GMO, value investing in 1990s and now, and departure of clients who don't believe in the approach.

"GMO Is Feeling Pain Reminiscent of the Late 1990s"
"This time around, the firm’s underperformance versus benchmarks has been 20 percent to 25 percent less than in the late 1990s, he wrote. But the duration has been “particularly painful.”"
https://www.institutionalinvestor.com/article/b1hjlb0qs4c807/GMO-Is-Feeling-Pain-Reminiscent-of-the-Late-1990s

As an aside, I'm not investing in GMO or the thesis of a super bubble.  For me, Mr Gratham revealed the possibility of a crash which got me doing my own research / due diligence.  Even before that, I had sold off my riskiest assets (late Dec to Jan 5) in anticipation of volatility and worse than +21%/year performance (2019-2021).

maizefolk

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #34 on: May 26, 2022, 02:48:56 PM »
If the Guru runs a fund, you don't need to interpret or try and pick apart their public statements, you can just look at their actual performance. Casandra knew the future. How have the GMO funds performed over the last 25 years?
I agree, which was my point above.  For Cassandra, though, there was also a curse where nobody would believe her, which is why I picked it as the title.

Cassandra was cursed to utter true prophecies but never be believed. When you call Jeremy Cassandra the message you convey to people is that you believe he can both tell the future and isn't being believed.
« Last Edit: May 26, 2022, 02:54:43 PM by maizefolk »

waltworks

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #35 on: May 26, 2022, 02:50:42 PM »
You can track Hussman's strategic growth fund, since he actually personally manages it. He's a similar perma-bear.

Since inception (2000ish) -34% (excluding 1.23% fees, which over 23 years does add up a bit!)
VTSAX, same time period +218%

-W

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #36 on: May 26, 2022, 03:12:39 PM »
The thing about Grantham is that a lot of people listen to him and believe him.  So, he's not really a Cassandra in that regard.   The other thing is that he's wrong a lot, so he's not really like Cassandra in that way either. 

MustacheAndaHalf

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #37 on: May 27, 2022, 01:34:04 PM »
Have fun, dude.

I played the long game and retired after a ~15 year "career". Maybe Jeremy Grantham should call me up for some tips.
Because you invest in index funds?  Jeremy Grantham was describing index funds more than 50 years ago - before Vanguard founder Jack Bogle started an index fund.  So no, a billionaire investor with decades of experience doesn't need tips from someone who followed his ideas decades afterwards.

"Jeremy Grantham and Dean LeBaron at Batterymarch Financial Management "described the idea at a Harvard Business School seminar in 1971, but found no takers until 1973. Two years later, in December 1974, the firm finally attracted its first index client."
"Bogle started the First Index Investment Trust on December 31, 1975"
https://en.wikipedia.org/wiki/Index_fund

Your reply to the above is this?

You can track Hussman's strategic growth fund, since he actually personally manages it. He's a similar perma-bear.

You specifically said you could give stock tips to Jeremy Grantham, and I pointed out his role in getting people to index in index funds - even before Vanguard's founder did so.  I don't consider Hussman relevant to a thread about Mr Grantham, who I view as spotting asset bubbles.

waltworks

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #38 on: May 27, 2022, 01:36:51 PM »
Cool. Like I said, you do you. Check back in in a decade. I'll be out mountain biking, instead of thinking about asset bubbles.

-W

MustacheAndaHalf

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #39 on: May 27, 2022, 01:43:00 PM »
If the Guru runs a fund, you don't need to interpret or try and pick apart their public statements, you can just look at their actual performance. Casandra knew the future. How have the GMO funds performed over the last 25 years?
I agree, which was my point above.  For Cassandra, though, there was also a curse where nobody would believe her, which is why I picked it as the title.
Cassandra was cursed to utter true prophecies but never be believed. When you call Jeremy Cassandra the message you convey to people is that you believe he can both tell the future and isn't being believed.
You caught me - I don't entirely believe the "super bubble" and 2/3rds drop in the stock market prediction.  Or maybe the Cassandra effect even applies to me?

What I need are specific areas where a bubble has formed, but I don't want to register on GMO's website ("G" stands for Grantham).  I haven't viewed various articles Mr Grantham wrote about this, and don't know if he has made predictions of a bubble in specific assets.  I don't know if, given that list, I'd be able to do useful research myself.

MustacheAndaHalf

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #40 on: May 27, 2022, 01:44:40 PM »
Cool. Like I said, you do you. Check back in in a decade. I'll be out mountain biking, instead of thinking about asset bubbles.
Past posts suggest you will keep replying in this thread while not acknowledging Mr Grantham's contribution to index funds.

maizefolk

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #41 on: May 27, 2022, 01:50:16 PM »
If the Guru runs a fund, you don't need to interpret or try and pick apart their public statements, you can just look at their actual performance. Casandra knew the future. How have the GMO funds performed over the last 25 years?
I agree, which was my point above.  For Cassandra, though, there was also a curse where nobody would believe her, which is why I picked it as the title.
Cassandra was cursed to utter true prophecies but never be believed. When you call Jeremy Cassandra the message you convey to people is that you believe he can both tell the future and isn't being believed.
You caught me - I don't entirely believe the "super bubble" and 2/3rds drop in the stock market prediction.  Or maybe the Cassandra effect even applies to me?

What I need are specific areas where a bubble has formed, but I don't want to register on GMO's website ("G" stands for Grantham).  I haven't viewed various articles Mr Grantham wrote about this, and don't know if he has made predictions of a bubble in specific assets.  I don't know if, given that list, I'd be able to do useful research myself.

So you:

1) Aren't sure of what all Grantham has predicted.
2) Don't buy into the predictions of Grantham you are aware of.
3) Are unhappy that you don't know more about his predictions.

Reminds me of that Annie Hall quote (never saw the movie so I had to look up where it was from):

"[Two people] are at a Catskill mountain resort, and one of 'em says, "Boy, the food at this place is really terrible." The other one says, "Yeah, I know; and such small portions.""

MustacheAndaHalf

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #42 on: May 27, 2022, 01:55:28 PM »
The thing about Grantham is that a lot of people listen to him and believe him.  So, he's not really a Cassandra in that regard.   The other thing is that he's wrong a lot, so he's not really like Cassandra in that way either.
I know he appears on Bloomberg TV and CNBC, so maybe that's evidence investors listen to Mr Grantham.  I don't hear his name mentioned much otherwise - and I believe he's retired, and does bubble spotting as a hobby.  I'm not clear who follows him.

To me, the question is performance, not the number of times he's wrong or right.  Like my guru example above, someone can be right 33% and beat the market +66.5%.  What I don't know, and would be open to hearing, is when Mr Grantham dramatically shifted his assets into value stocks and cash.

waltworks

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #43 on: May 27, 2022, 02:48:06 PM »
Cool. Like I said, you do you. Check back in in a decade. I'll be out mountain biking, instead of thinking about asset bubbles.
Past posts suggest you will keep replying in this thread while not acknowledging Mr Grantham's contribution to index funds.

Oh, don't worry! I'll be here for you. Someone's gotta keep things honest so the noobs don't think they can predict the future too.

-W

MustacheAndaHalf

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #44 on: May 27, 2022, 02:49:36 PM »
If the Guru runs a fund, you don't need to interpret or try and pick apart their public statements, you can just look at their actual performance. Casandra knew the future. How have the GMO funds performed over the last 25 years?
I agree, which was my point above.  For Cassandra, though, there was also a curse where nobody would believe her, which is why I picked it as the title.
Cassandra was cursed to utter true prophecies but never be believed. When you call Jeremy Cassandra the message you convey to people is that you believe he can both tell the future and isn't being believed.
You caught me - I don't entirely believe the "super bubble" and 2/3rds drop in the stock market prediction.  Or maybe the Cassandra effect even applies to me?

What I need are specific areas where a bubble has formed, but I don't want to register on GMO's website ("G" stands for Grantham).  I haven't viewed various articles Mr Grantham wrote about this, and don't know if he has made predictions of a bubble in specific assets.  I don't know if, given that list, I'd be able to do useful research myself.

So you:

1) Aren't sure of what all Grantham has predicted.
2) Don't buy into the predictions of Grantham you are aware of.
3) Are unhappy that you don't know more about his predictions.

Reminds me of that Annie Hall quote (never saw the movie so I had to look up where it was from):

"[Two people] are at a Catskill mountain resort, and one of 'em says, "Boy, the food at this place is really terrible." The other one says, "Yeah, I know; and such small portions.""
Mr Grantham has predicted a 1/2 to 2/3rd drop in the stock market driven by speculation, and shown in the flight to safe stocks in 2021 by equity money managers.  If you think I've left out material points, feel free to correct me on specifics.

I have views on Mr Grantham ranging from agreement to disagreement, and uncertainty in between, so I wouldn't agree with (2) being all or nothing.  Ultimately I view this more like:

(from The Matrix, Neo and Morpheus are going to visit The Oracle)
Neo: "And she's never wrong."
Morpheus: "Try not to think of her in terms of right and wrong.  She's a guide, Neo.  She can show you the path."

In my opinion, Mr Grantham predicted a major crash in 2021 while ignoring the Fed printing of $2 trillion USD last year.  I view this as apologizing or explaining (your pick) Mr Grantham's mistake, and would point to a past prediction of his that failed for similar reasons.  I think it's fair to modify Mr Grantham predictions by giving the Federal Reserve more weight, and delaying those predictions to April 2022.  But it's reasonable for others to disagree.

The market believes in "peak inflation" and a recovery from here.  In contrast, I side with Mr Grantham, who predicts a 1/2 to 2/3rds crash from 2021 highs.  My wider view of 1/3rd crash or more overlaps Mr Grantham's, and is closer to him than to the overly optimistic market.

Equity money managers have rules that keep them almost entirely in stocks.  Mr Grantham claims when trouble occurs, they flock from risky to safe stocks (not his terms, I can't recall precisely from 2 months ago).  He specifically pointed to a gap in certain groups of stocks as showing this behavior, and claimed it was a strong signal of a bubble.  Can I confirm that?  Is it a false positive in prior years?  Did it predict prior crashes?  I don't know any of those answers, but Mr Grantham's logic is reasonable and makes sense.  I think gaining certainty over this would probably be a waste of time - and in any event, the market has already begin crashing (-16% from 52 week high).

When the treasury yield curve inverted in March 2022, I listened to Mr Grantham and favored his theories over the market's optimism.  I switched to 0% equities, and since then the market has dropped 9%.  So in terms of the timing of my investment decisions, I'm also mostly aligned with Mr Grantham.

In general, money mangers don't tell you every secret they know - that's why they get paid.  So it's possible Mr Grantham isn't giving away everything he knows for free, either.  In listening to Mr Grantham and searching for more details, I haven't discovered a list of assets he feels are in bubble territory.  I've spent a few hours trying, but I don't know the chance of success or effort level required.

A "super bubble" suggests the confluence of several, and I wish that information would find it's way to me.  In this thread, one poster mentioned guru scores, which is a good start.  If Bloomberg TV or other posters drop the list in my lap, that's great.  If they don't, I'm still going to invest the same way - as if a crash is likely, and not reflected in the market's optimism.  Mr Grantham and I are on the same page there.

MustacheAndaHalf

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #45 on: May 27, 2022, 02:54:34 PM »
Cool. Like I said, you do you. Check back in in a decade. I'll be out mountain biking, instead of thinking about asset bubbles.
Past posts suggest you will keep replying in this thread while not acknowledging Mr Grantham's contribution to index funds.
Oh, don't worry! I'll be here for you. Someone's gotta keep things honest so the noobs don't think they can predict the future too.
That's the spirit!  Hm, and you're not wrong.

Disclaimer!  I can lose 25% of my portfolio and not care - can any noobs reading this say the same?  I'm trying to market time a crash - which most investors with wisdom and experience will tell you is a bad idea.  Even worse, if I do time it right I've said repeatedly it's unlikely I'll keep others up to date - you'll miss a bottom even if I predict it.

maizefolk

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #46 on: May 27, 2022, 03:08:24 PM »
When you are a noob is the absolute best time to lose 25% of your portfolio.

I forget the exact percentage but I lost a non-trivial percentage of my net worth at that stage buying stocks that I'd read about and analyzed and had a gut feeling about. The total losses work out to about 1.5 months pay today so I can mostly shrug it off.

waltworks

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #47 on: May 27, 2022, 03:47:20 PM »
Agreed. If you get lucky a few times in a row, you'll attribute it to skill (we all do this) and then when you fail going forward, it's due to bad luck/you just need to try harder.

Losing enough money to hurt at the very start is the best thing that can possibly happen to you.

-W

MustacheAndaHalf

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #48 on: May 27, 2022, 04:05:27 PM »
For any noobs excited to lose money fast, I have great news: an investment that has already lost 22%.  One of my positions is SQQQ which lost 22% since... Tuesday.  From 2010-2020, the calendar year performance of the market only exceeded that in two calendar years (2013, 2019).  You might say buying SQQQ at Tuesday's open was like losing an entire year of stock performance by Friday's close.

Telecaster

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Re: Jeremy Grantham, the stock market's Cassandra
« Reply #49 on: May 27, 2022, 06:07:48 PM »
When you are a noob is the absolute best time to lose 25% of your portfolio.

I forget the exact percentage but I lost a non-trivial percentage of my net worth at that stage buying stocks that I'd read about and analyzed and had a gut feeling about. The total losses work out to about 1.5 months pay today so I can mostly shrug it off.

Yeah, but if you add up the missed compounding it would be pretty painful.

Sorry to twist the knife.

Also:  I've done the same thing.