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U.S. stock valuations haven’t been this extreme since 1929 and 2000
- YZF 9y agoThe 10 year US bonds haven't had such low rates and for such a long time at least since 1962 (as far back as the Yahoo Finance data goes). Inflation is low. Your belief in the valuation should be linked to how you feel about rates and inflation. If rates stay this low for a very extended period than the valuation might be on the low side. At any rate, these are unchartered territories in terms of investment returns and valuations. EDIT: even going back to 1912 the 10 year rates are unusually low for an extended period. The closest historic period is during the 1940's valuations back then (P/E ratios) were lower (peaking around 1946).
- nl 9y ago(US Loan) interest rates (which are related to bond prices) are around the lowest they have been in recorded history (~5000 years): https://www.businessinsider.com.au/chart-5000-years-of-interest-rates-2015-9 https://www.businessinsider.com.au/chart-5000-years-of-inter...
- WilliamSt 9y agoAssuming the market keep on growing over time as it has done for a very long time, all time highs aren't something spectacular or unusual in the stock market, in fact it occurs almost on a daily basis. As an analogy; if you go to a grocery store, all the items on the shelves are at an all time high price, but no one is expecting the price of milk to drop drastically just because it's at an all time high.
- empthought 9y agoThe price of milk is not generally subject to speculative bubbles, though. When it is (let's say some kind of shortage rumor or disaster prep) the price indeed crashes after reaching absurd levels.
- YZF 9y agoI wouldn't call where we are a speculative bubble. If you look at the P/E or dividend rates of stocks and compare that to other investments you'll see they are still favourable. So a decision to e.g. own MSFT stock that a higher dividend than you'd get in a 10 year bond, while not without risk, isn't pure speculation. MSFT has a business with good prospects and it makes money and pays it back to you. Where else do you put your money?
- nandemo 9y agoThat's not a good analogy. When they say S&P 500 stocks are "expensive" than before, that doesn't mean (just) expensive in absolute terms. It's expensive in terms of price/earnings ratio and such metrics. The story is still suspicious for other reasons: what jedberg said.
- turk183 9y agoAnd yet, inflation is said to be low. I'm not sure it is.
- mywittyname 9y agoThere are multiple, valid definitions of inflation, thus it can be low and high at the same time. The Treasury Rate and CPI could both be low while real estate or precious metal prices explode. Likewise, real estate prices could be in a freefall while the CPI hits double digits.
- harryh 9y agoThis is wrong. Inflation doesn't measure the price of goods, it measures the price of money. "Inflation always and everywhere a monetary phenomenon." -Milton Friedman
- freefm 9y agoEven if there is a global downturn, the US economy will remain strong. Where else is capital going to go? If developing economies go bust, developed nations like the US will buy up their assets in a fire-sale.
- exelius 9y agoChina just opened up outside investment this week. Chinese capital already owns way more of America through various investment vehicles than we are willing to admit. We abdicated our global leadership to China the day Trump was elected. Our economic leadership will likely follow in the next decade.
- freefm 9y agoChina's economy is highly dependent on Western consumption of their goods. If the US went into recession, and Americans significantly cut back on their consumption, which many of them certainly could afford to without going into poverty, wouldn't that wreck China's economy?
- fooker 9y ago>China's economy is highly dependent on Western consumption of their goods. If the US went into recession, and Americans significantly cut back on their consumption, which many of them certainly could afford to without going into poverty, wouldn't that wreck China's economy? No, they will manipulate their currency or adjust prices so that more people from China and India buy that stuff. Adding a few hundred million consumers will not be that difficult with those measures.
- mywittyname 9y agoThe Fed manipulates US currency too. We just don't call it "currency manipulation" because, conveniently, the definition of currency manipulation is buying foreign currency. Buying up your own currency/bonds or increasing reserve requirements achieves the same result.
- aswanson 9y agoWe are long overdue for a correction. Put your money into bonds and buy into the fire sales in inevitable upcoming crash.
- CuriouslyC 9y agoPersonally I would prefer a diversified portfolio of stocks whose value haven't displayed correlation with previous market corrections.
- gfodor 9y agoBonds may not be a safe haven
- aswanson 9y agoCash?
- DaiPlusPlus 9y agoBitcoin?
- CuriouslyC 9y agoIt's also bubbling up nicely, and one good crash deserves another.
- richardknop 9y agoReal estate.
- brndnmtthws 9y agoThis is the wrong thing to do. Don't try to time the market. Here's some reading for anyone that wants to understand the basics and learn how to avoid investing emotionally: https://www.bogleheads.org/wiki/Bogleheads%C2%AE_investment_philosophy https://www.bogleheads.org/wiki/Bogleheads%C2%AE_investment_... Pay close attention to the "Diversify", and "Never try to time the market" sections.
- TheAdamAndChe 9y agoThe miscalculation that I believe economists are making is the massive shift in leverage between the laborers and the owners. Historically, the two were balanced to the point that creating greater economic growth would tip the scales in the laborers' favor, thus increasing wages and inflation. What's happening now is that, due to many factors including outsourcing, illegal immigration, lobbying(bribery), capital concentration, anti-union legislation, anti-small business legislation, and a lot more, the scales are tipped so far in big business's favor that monetary policy is having a limited effect. I honestly don't know if this trend can be reversed without something major happening.
- aswanson 9y agoThat sounds like a suggestion that something very bad has to happen.
- TheAdamAndChe 9y agoNothing _has_ to happen. Mass media makes propaganda much easier to spread, and I consider it very likely that nothing will happen and inequality will strengthen for a long time. My point is that the system seems to be stuck in a positive feedback loop where greater capital concentration strengthens the system that created capital concentration in the first place. _Something_ would need to facilitate the movement out of that loop, and historically events required to lower inequality(world war, civil war, lower-class uprisings) haven't been pleasant.
- lazerpants 9y ago>(world war, civil war, lower-class uprisings) You forgot plagues, not that those are more pleasant.
- QAPereo 9y agoIt almost always is.
- gragas 9y ago>lobbying(bribery), capital concentration, anti-union legislation, anti-small business legislation We've learned through the decades---and especially through the bailouts in the late 2000s---that slapping big business on the wrist is not enough to stop cronyism and government-enabled monopoly. The only way to eliminate that is to cut the snake off at its head; if there is no power to dole out, lobbying wouldn't exist. If the government can't choose who succeeds and who fails, then only those who provide value can succeed. The only way to grow a business without a monopoly is to employ people (whether directly, or indirectly by investing capital).
- nfriedly 9y agoIf you're working a job that isn't directly related to the stock market, and are not about to retire, then you really shouldn't care if the stock market is about to crash or not. Set up automatic investments into a Vanguard Target Retirement fund (or whatever), and know that whenever the next crash does come, you'll get an exceptionally good deal that month. Here's some good advice on the subject: http://www.mrmoneymustache.com/2017/06/20/next-recession/ http://www.mrmoneymustache.com/2017/06/20/next-recession/
- closeparen 9y ago>a job that isn't related to the stock market No such thing, except for maybe the government. If your business isn't sensitive to its stock price, its customers/suppliers/financiers are. Or their customers/suppliers/financiers are. Everything is connected, if you exist in the modern economy, you don't exist in a vacuum.
- nfriedly 9y agoYou're correct, I'm gong to edit it to say "not directly related", but the point I was trying to get to remains: don't worry about things that you have absolutely no control over and no good reason to worry about.
- 1_2__4 9y agoI'm sorry but that's just awful advice. Just because you don't have control over something doesn't mean you can't foresee it and take appropriate action to protect yourself in advance.
- nfriedly 9y agoThe automatic investments part is the appropriate action for most people to protect themselves in advance.
- enraged_camel 9y agoYou cannot time the stock market. Trying to predict a crash and taking money out in an attempt to avoid losses is a recipe for disaster. For individual investors who use the stock market for their retirement funds, the appropriate action to protect oneself from the fluctuations of the market, including crashes, is to have the appropriate retirement target set, along with the proper level of acceptable risk (which automatically allocates the funds among different asset classes). After that, it's a matter of waiting... and not doing anything rash during extreme events.
- zzalpha 9y agoSo don't try to time the market. Except this time.
- zeep 9y ago1. sell 2. wait 2 years (or less) 3. profit (buy back)
- tim333 9y agoDon't time it but do value it. Given the low expected returns from the current levels you might look for something else with better ones. Thought I'm not sure what exactly.
- zzalpha 9y agoOr just diversify and wait. The returns will find you.
- revmoo 9y agoPast returns do not dictate future results-- therefore, you should buy index funds because their past returns have been good.
- jedberg 9y agoThis article felt more like an ad for active money management (and ignoring index funds) than anything else. Which makes sense. It's driving active managers nuts the techtonic shift to passive investing. This was a good podcast on active vs passive investing: http://freakonomics.com/podcast/stupidest-money/ http://freakonomics.com/podcast/stupidest-money/
- brndnmtthws 9y agoThat and it's a classic case of trying to time the market, which is not something a savvy investor would do.
- cromwellian 9y agoYep, the opening claiming leaving your money in an index fund amounts to "speculation" seemed bizarrely backwards to me. So trying to pick winners and losers isn't speculation, it's investing, but investing in a balanced portfolio spreading risk over the long term is? The latter is only speculating that over the long term, there'll be more winners than losers in your portfolio. The former relies on making individualized bets correctly. How many portfolio managers beat long term returns to the S&P 500? Not many that I've seen.
- twelve40 9y agoThat's not what they claim though. They claim that significant exposure to US stocks, especially via indexes, right _at this moment_ looks risky since the entire US market is overheated and it requires an active investor to find any reasonable deals, if there are any left. At the same time, they could be both wrong about overheated part, and lobbying to get some active investing fees, sure, but if you do take the viewpoint of the currently overpriced market, then the speculation claim doesn't seem too bizarre.
- notfromhere 9y agoif only active investing by big money managers actually performed better than passive investing
- 1_2__4 9y agoAnytime a story or study like this comes out I can always visit the HN comment section to find armchair economists pooh-poohing it. It's like clockwork.
- deleted 9y ago[deleted]
- notfromhere 9y agoIt's a blog on marketwatch. not exactly hard-hitting research
- KKKKkkkk1 9y agoSome dude with a blog predicts an impending stock-market crash. Well, Robert Shiller, the Nobel Prize laureate, has been predicting a stock-market crash since what, 2016? And the market kept on rising. This is not to imply that a crash or a long period of low returns is not coming, just that the opinions of financial pundits are just that.
- brndnmtthws 9y agoIt's the same news cycle over and over: https://trends.google.com/trends/explore?date=today%205-y&q=stock%20market%20bubble,stock%20market%20correction https://trends.google.com/trends/explore?date=today%205-y&q=... Doomsday predctions have always been good at generating ad revenue for publishers.
- c3534l 9y agoSure, but recessions and depressions are not something that is really all that rare. Unlike doomsday predictions, if you predict a crash you'll probably be right within a decade at least by pure chance alone.
- tcbawo 9y agoHas he? I've always read him as being quite measured, saying that his index (10 year average) was not good at predicting near term returns. There are plenty of perma-bears, though. Although, in my opinion, being wrong on timing by years is still being wrong.
- sumedh 9y agoRobert Shiller, the Nobel Prize laureate Shiller is an economist not an investor, in 2008 he kept saying that it will take a long time for the markets to recover, even telling it to the famous investors who were invited as guests in the class, the market went up next year.
- otp124 9y agoDid he say that before or after the US gov bailed out Wall Street?
- nradov 9y ago“Stock prices have reached what looks like a permanently high plateau.” Yale economist Irving Fisher, 1929
- dbjacobs 9y agoAt the market level, stock returns only come from 4 things: dividend yield, real earnings growth, inflation, P/E expansion/contraction. Looking at 10yr+ returns, the dividends and real earnings growth are likely to be relatively stable. The big wild card is P/E expansion/contraction. Dividend yield + real earnings growth gives us a baseline real return of around 3.6%. A 30% PE contraction over the next 10 years would bring that return down to 0% and would still leave the PE at historically high levels. A return to historical valuation levels would mean a negative return in the neighbourhood of -3% annually. Of course, it is also possible for PE to expand another 30% over the next decade causing stocks to deliver great returns. Which scenario the world follows is more due to sentiment than economic performance which is why it is not predictable. Although there is certainly a probability bias towards the downside With that said, valuation levels tell you a tremendous amount about risk levels, which are VERY high right now. Which might inform you to lower your stock exposure if you can't handle a large drop in pricing (either due to not being able to sleep at night or the effect it would have on your lifestyle).
- turk183 9y agoI think PE has failed as a marker because there's too much capital chasing too few investments so of course PEs will be astronomical. High PEs don't mean what people think they mean or once meant.
- benlorenzetti 9y agoBetween monetary policies from the Fed that have increased the base money supply by a factor of >5 since 2008 [1], and sustained trade imbalances on the order of tens of billions per month [2], it should not be surprising that stock prices are at records highs. There is just so much more money around that has to be invested but cannot be used; the recent high in the stock market is not just based on the business cycle and traditional productivity/population growth. If this is your take on the stock market's dramatic rise beyond 2008, then investing further in stocks and indexes may still be the thing to do even if it feel we're getting ripped off on the price. 1. https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/WALCL 2. https://fred.stlouisfed.org/series/BOPGSTB https://fred.stlouisfed.org/series/BOPGSTB