Bubble of the Century?

(see chart below) How long will this continue for? I personally believe low interest rates have propped up the markets since it began. The ECB, BOC, and BOJ are meeting this week to make their decision for interest rates.

Yields have also been moving up while equities market is still climbing (even after that small correction). Something can't be right here?

This sure will be a busy week in the FX market, I'm sure institutions have already exited/re-positions by now.

 

Yeah but it's been insanely cheap money that companies have been borrowing, no wonder it's been this easy for all these companies to hit their EPS, and beat expectations. I'm just thinking that all this comes to an end soon, it's been an amazing 10 years but I feel soon (I don't know, I cant predict the market, no one can) there will be a mass exodus from US Equities if Powell is very hawkish. This is the same thing when Yellen came though, no one really knows yet. It's only a matter of time until we see how the Fed views this. I think the Economy in general is doing great so interest rates will start to move upward but markets are cyclical.

I'm not trying to play Big Short hero but just some thoughts :D

Array
 

I mean, the Federal Reserve only controls short-term rates. If long-term rates are rising organically it's because the economy is killing it, which probably means the publicly traded stocks' underlying earnings are killing it. Low rates have definitely helped stocks, but stocks will continue to perform fairly well if the underlying performance of the companies is solid. I can't see a stock market burst with 3-5% economic growth.

Array
 

Earnings have grown due to artificially low cost of capital, not organic expansion. A true picture of the health of our economy is shown by the complete disconnect between sales growth and earnings growth. Yes, automation plays a large role in cost cutting, but also exacerbates the issues of growing wealth inequality and diminishing workforce participation.

Much of the developed world is in a Catch 22 - we cannot handle a substantial interest rate increase but also need one to mitigate out of control asset inflation (real-estate prices) and wealth inequality (financial arbitrage by those with access to cheap margin debt).

 

Stocks have been extended for a while but trying to predict the exact timing of a "crash" is very tough...what if it isn't a "crash", but more of a "gradual" ~20% slide over 6 months as signs of inflation pick up and the FED gets more hawkish?

Personally, I have no clue but if I had to guess I'd think that we'll get a nice stagflationary ~1-2 years in 2019-2021 time period which will take the wind out of a lot of these stocks.

Tech will underperform in the short run and continue to outperform in the long run.

 
WallStreetOasis.com:
Stocks have been extended for a while but trying to predict the exact timing of a "crash" is very tough...what if it isn't a "crash", but more of a "gradual" ~20% slide over 6 months as signs of inflation pick up and the FED gets more hawkish?

Personally, I have no clue but if I had to guess I'd think that we'll get a nice stagflationary ~1-2 years in 2019-2021 time period which will take the wind out of a lot of these stocks.

I'd expected this in 2016-8 as interest rates were confirmed to begin to rise. Two things now seem to require some sort of crash: last year's 30% irrational run up and recent volatility. Had either of these existed on their own I'd be content to shrug, but the drop down to rational levels is likely to be steeper and faster than most people are comfortable with, leading to a negative feedback loop of self fulfilling crash. Potential catalysts include Chinese real estate market crash, war, trade war, BTC crash (my favorite guess), among others.

I pulled out 100% and am now waiting for a reversion to the mean:

Get busy living
 

yeah, you're probably right, but why pull out 100%? what about repositioning instead?

You could have made the exact same argument 3 or even 4 years ago and missed out on some spectacular years...why not just keep the capital in the market and reposition it to become more defensive?

I never understand the extremes...what if we run up 40% from here and THEN have the "big crash"...well then it won't be that big, in real terms. I don't see how it can be worse than 2008 unless it's a complete economic collapse?

Unless you have a way to invest passively in something that can give you an avg return of ~6-7% per year, why would you pull out of stocks? Why didn't you pull out 2 or 3 years ago? Are you just sitting in cash?

 
Best Response

Let's just make this qualification: nobody knows anything about the near-term or long-term direction the market will go. We could just as easily be in a secular, 30 year bull market, as we could be facing another deep recession. If I was a betting man, I'd bet on the former. The world is changing in so many ways that I see immense opportunity in general over the next few decades. Developed western countries will continue to further their advantages over the rest of the world, I think that in turn these advantages will continue to fuel the capital markets.

 

There was a story on Reuters concerning fraudulent statements made by the chinese youth; they want homes (now) not tomorrow, but yesterday, and now. They're going to private banks, smaller banks, and fraudulently filling out documents for luxury condominiums in Hong Kong.

This is the bubble: Chinese consumer credit. The Chinese housing market is the next bubble, but of course, since it is a communist dictatorship, it will not burst. There is no more bubbles, unless of course you're talking about Cannabis. Cannabis has so many dangers associated with it: Cannabis is a clinical trial in the Americas, and when enough research is conducted on it (official research) and that is published: Cannabis stocks which are extremely overvalued (at the moment) will diminish.

The next bubble after that is pharmaceuticals. Since the world is taking a holistic approach to health, even after sophisticated medicine using Cannabis derivatives is conducted, most medicine if not all will be moot.

 
spaceandtime:
There was a story on Reuters concerning fraudulent statements made by the chinese youth; they want homes (now) not tomorrow, but yesterday, and now. They're going to private banks, smaller banks, and fraudulently filling out documents for luxury condominiums in Hong Kong.

This is the bubble: Chinese consumer credit. The Chinese housing market is the next bubble, but of course, since it is a communist dictatorship, it will not burst. There is no more bubbles, unless of course you're talking about Cannabis. Cannabis has so many dangers associated with it: Cannabis is a clinical trial in the Americas, and when enough research is conducted on it (official research) and that is published: Cannabis stocks which are extremely overvalued (at the moment) will diminish.

The next bubble after that is pharmaceuticals. Since the world is taking a holistic approach to health, even after sophisticated medicine using Cannabis derivatives is conducted, most medicine if not all will be moot.

Get busy living
 
TippyTop11:
It would have to be a pretty big bubble to beat the 2 historical ones we have already had this century: Tech 1999-2001, and Housing / GFC 07-09

See chart above. Bubble this time around is yuuuge.

Get busy living
 

The housing bubble was much smaller than it appeared.

It’s more accurately described as a central banking mistake where they got concerned with high oil prices from China entering the market and missed the fact that real rates were falling.

 

If central banks were artificially keeping interest rates low it would have led to inflation. That didn’t happen. So low rates are being caused by real Factors and not central banks.

Equity valuations are higher because the real interest rate has fallen for structural reasons.

 

It takes time for monetary policy (i.e. QE in our case) to be priced into the market.

It becomes much easier to conceptualize when you consider the true meaning of inflation is an increase in the money supply. QE has led to a substantial increase in the money supply and it takes time for that money to work it's way through the system. When it does, there is more money to buy stuff with than what can naturally be produced and, due to the laws of supply/demand, price increases occur (the modern/keyensian definition of inflation.)

The big issue is the disconnect between when price increases actually occur/are realized and consumer/investor confidence. The fed knows that increasing rates to counter rampant inflation is necessary, but they will never act fast enough because it would be political suicide for the party in office. Just by saying the fed is going to increase rates, without actually increasing them, has a negative affect on the market. Think about if the fed let rates trend back to normal levels (5-6%ish) overnight? The party in office tries to kick the can down the road by keep rates as low as possible for as long as possible to pass it onto the next guy. This is why bubbles continue to get bigger and last longer before popping than each previous bubble.

Logically, there is no question the next bear market will be substantial, if not historic. The challenge is that nobody can predict when it will happen, so it makes reliable/long-term investing and money mangement for the average investor damn near impossible.

Fiat currencies and central planning, man. Unnaturally/unnecessarily over complicated stuff.

 

Australia is like 30 years since their last recession. China in the same camp. Bear markets are unnatural.

Umm. 10 years isn’t long enough for inflation to show up? I mean I can never prove you wrong. You will just claim it’s coming. Maybe we need 100 years.

You are analytically weak and trying to make up future scenarios as certainties to fit your own biases.

 

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