Are we in a bubble?
Looking to get some perspectives on the current state of the markets, and whether people think we are in a bubble that is going to pop or not.
If you are convinced we are in a bubble, what are you doing to mitigate? How much cash are you holding?
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Yes - we are in a bubble, it will pop, and a new one will rise again.
To be clear, however, I think it has legs. The sheer amounts of liquidity being pumped into the system + the spectrum of the economy opening back up + MOAR stimulus because the other stuff was just for the crisis, have to be sure = higher prices for everything. At least for the next few years... if you can stomach lots of volatility, there's gains to be had.
I've pared back, slightly, some higher beta names that I own - with the full intention of buying them back should the market go down 10 or 15%. That's my general view at this point in my trading account at least. I've looked at hedging... sadly I'm far too poor to actually hedge positions, better off just selling the whole damn thing If I'm really that scared of a big draw down... or doing what I'm currently doing, paring off gains as things go up.
Honestly - I'm pretty comfortable with most all of my positions at this point... which means I should be terrified. Cash is high - call it 40 to 50% overall, outside of 401k which is in the markets to stay - with more coming in as I go.
Permabears have been screaming bubble for literally the last decade. After the March crash and we started to recover, they were saying, "just wait until earnings come out, then you'll see how bad it is!" Then it was "wait until cases start to rise!" Then it was "wait until we don't get more stimulus!" According to the bears, there were about 1,000 catalysts that should have burst the bubble, and yet here we are. The Federal Reserve has essentially said that they will not let another crash happen. Yes, valuations are hot right now. But we saw this past earnings, that the tech companies whose share price has been killing it are doing pretty well for themselves (Amazon, Apple, Microsoft, even Tesla). People fail to understand that markets adapt, and especially with the influx of retail money this past year, both due to the crash and the GME squeeze, the stock market is different than it was 10 years ago. Which is why you can't point to the Intelligent Investor as evidence as to why the market doesn't follow your opinion on how companies should be valued. I mean as it is, there are so many ways to fuck with an equity report and justify whatever price target you want. So are we in a bubble? Kind of. Are prices relative to value higher than they've ever been? Yes. Do we have a lot of things to look forward to (stimmy, economy opening back up)? Also yes. So I think the end result will be higher than usual inflation over the long run. Not overnight, but gradually. And as long as it's controlled, I'm willing to deal with that. As Addinator said, I think this one still has legs. There are just too many positive catalysts as opposed to negative catalysts. I'm holding about 20% cash, 30% ARKK, and the rest SPY.
This.
Imagine sitting on a bunch of cash in 2010-2011 and not investing it because you were afraid of a bubble at that time.
I saw a recent post about all of the headlines claiming a bubble over the last ten years. Crazy.
This is my mom. Hasn't had a dollar in the market since probably 07. Sad to watch.
No, we're not in a bubble
Valuations are high, but stimulus checks about to go out, and economy is in the process of re-opening post-lockdown.
Stimulus at the federal level (US and otherwise) was very big last year. Interest rates are very low. Money is very cheap. Inflation is likely the no.1 worry for the next few years
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No
I think we need to re-evaluate what an expensive market looks like. Using historical context this market is crazy, but never before has there been so much cash on the sidelines, interest rates so low, and so few options for alpha outside of being risk on. I mean I’m in Canada and the pension funds have been creating in house VC arms as they try and stay funded.... The second prices go down to more historical norms, sidelined cash gets deployed. It’s not a permanent state of affairs, but I can’t see it ending anytime soon. (Famous last words, I know)
Don’t think so. Record low rates plus massive liquidity stimulus support high valuations. That said a 10-15% correction might be feasible but definitely don’t see a massive 25-30% dip
No, this is the new norm. We have a federal government that subscribes to Modern Monetary Theory. Unless a foreign currency surpasses ours, we can just print our way out of any crash.
It has a snowball effect too. Other countries, investors, etc. see that we can print our way out of any crash, so they move their money to our economy, which makes our dollar stronger.
The counterpoint is "what about inflation"? The idea is that increasing taxes can control inflation.
It used to be a crazy theory that most economists brushed off, but it actually appears to have legs and has been put to the test as of late.
what is the best way to profit off of this
Howard Mark’s latest memo talks about value vs growth. Think this market and rise of tech stocks has him re-thinking some of his views.
There’s definitely some exhuberance in some sectors (crypto, EV, Spacs, etc) but even if the market seems a tad expensive I have a tough time believing we’re in the middle of a bubble.
Where are you guys putting deposits earmarked for shorter term liquidity needs (e.g. housing down payment, some insane emergency)? Curious with HY savings seemingly being zapped away and bond yields being pressed against the ceiling.
use SPACs close to NAV as a bank account
This market forces you to be fully invested. I’m a bond trader, and I don’t even invest in my own product. Mutual funds/index funds, even HY funds don’t make sense after you account for expense ratios in terms of short duration. If anything park liquid funds in inflationary sectors right now, I.e. energy which is highly undervalued. Otherwise your real yield will be consistently negative, there’s just no getting around it in this environment
What do you think of putting emergency funds into bonds? So far not going well and thinking of pulling it out...
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