6 ms·

The question is, what is the bubble? I'd argue the entire stock market is the bubble right now, with boomers throwing everything they have into the market to ge

The question is, what is the bubble? I'd argue the entire stock market is the bubble right now, with boomers throwing everything they have into the market to get some of that free money before they retire. Once they start pulling back it's going to be a sad day. Right now US household "wealth" is sitting at >500% of GDP. That's not sustainable.

pushtheenvelope 7y ago
Why is it not sustainable that household wealth is > 500% of GDP? In the parlance of company finances, GDP is like revenue and wealth is the valuation representing the present value of all future profits. So, it seems fine to me that the present value of future profits of the US is 5x the current revenue. I'm seeking to understand where this analogy may break down. Thanks :)
- WarDores 7y ago
  Traditionally, anything above ~350% has indicated a bubble. With the housing bubble, we saw a peak of 473%, and the dot-com bubble was 429% at its peak. Essentially, yes, wealth will be a multiple of GDP, but the multiple has been fairly constant historically, and it's diverging rapidly now. So either we're in an era where assets are significantly more valuable (and I'm not sure there's a good case for that given the multiplier), or we're in an asset bubble.
  - lixtra 7y ago
    See https://www.forbes.com/sites/jessecolombo/2018/08/24/u-s-household-wealth-is-experiencing-an-unsustainable-bubble/ https://www.forbes.com/sites/jessecolombo/2018/08/24/u-s-hou... for a more elaborate treatise of the subject.
jbattle 7y ago
Wouldn't the boomers be heavily allocated in bonds at this point? Even the youngest of them are basically at or nearly at retirement age (at least the ones with enough resources to hold much in stocks)
- WarDores 7y ago
  Anecdotally -- take my experience for what it's worth, small sample size warning -- some/a lot of boomers are behind in saving for retirement, and are trying to catch up by riding the asset boom.
kart23 7y ago
Not just boomers. Robinhood has made it so you can buy stock on your iphone in a couple minutes. Everyone has stock, and I think the market is crazy overvalued right now. I think everything's a bubble right now. People are in loads of debt, more regular americans invest in the stock market, driving prices higher, all we need is a spark to get the fire going. Could come in the form of china and Hong Kong, could be the collapse of Deutsche bank, or very high valued startups failing, or something completely unforseen. Theres a lot of uncertainty right now, and any big event could crash it all.
- WarDores 7y ago
  Agreed. The stock market is seen as a sure thing right now. It's a buying frenzy out there, even for companies that have zero fundamentals.
  - lotsofpulp 7y ago
    Is it not a sure thing? Time and time again, the US government has been willing to sacrifice the value of the dollar to pump up the value of equities. Maybe the share price of certain companies decline, but the voters of the US have a vested interest in keeping equity prices high (401k, pension fund investments, etc). On top of that, the number of companies has been getting smaller and smaller, and the companies left are getting bigger and bigger. If anything, there is more systemic risk than before, and hence even more incentive for bailouts. As far as I can tell, the day the US stops bailing out equities, I imagine it will be in a weakened state where the USD no longer has reserve currency status, and there might be bigger problems to worry about than a recession. Until then, total stock market ETFs should do at least as well as inflation.
- sigstoat 7y ago
  > Everyone has stock everyone _should_ have stock; what reasonable investment plan doesn't have stock? you might as well hyperventilate about everyone having drawers full of socks.
  - kart23 7y ago
sigstoat 7y ago
boomers have been retiring since before 2008. probably the ones with the most equities first.
md2be 7y ago
There is a bubble, it’s in the bond market. It’s has all the phases of a bible, including irrational exuberance.

pushtheenvelope 7y ago

Why is it not sustainable that household wealth is > 500% of GDP? In the parlance of company finances, GDP is like revenue and wealth is the valuation representing the present value of all future profits. So, it seems fine to me that the present value of future profits of the US is 5x the current revenue. I'm seeking to understand where this analogy may break down. Thanks :)

WarDores 7y ago
Traditionally, anything above ~350% has indicated a bubble. With the housing bubble, we saw a peak of 473%, and the dot-com bubble was 429% at its peak. Essentially, yes, wealth will be a multiple of GDP, but the multiple has been fairly constant historically, and it's diverging rapidly now. So either we're in an era where assets are significantly more valuable (and I'm not sure there's a good case for that given the multiplier), or we're in an asset bubble.
- lixtra 7y ago
  See https://www.forbes.com/sites/jessecolombo/2018/08/24/u-s-household-wealth-is-experiencing-an-unsustainable-bubble/ https://www.forbes.com/sites/jessecolombo/2018/08/24/u-s-hou... for a more elaborate treatise of the subject.

jbattle 7y ago

Wouldn't the boomers be heavily allocated in bonds at this point? Even the youngest of them are basically at or nearly at retirement age (at least the ones with enough resources to hold much in stocks)

WarDores 7y ago
Anecdotally -- take my experience for what it's worth, small sample size warning -- some/a lot of boomers are behind in saving for retirement, and are trying to catch up by riding the asset boom.

kart23 7y ago

Not just boomers. Robinhood has made it so you can buy stock on your iphone in a couple minutes. Everyone has stock, and I think the market is crazy overvalued right now. I think everything's a bubble right now. People are in loads of debt, more regular americans invest in the stock market, driving prices higher, all we need is a spark to get the fire going. Could come in the form of china and Hong Kong, could be the collapse of Deutsche bank, or very high valued startups failing, or something completely unforseen. Theres a lot of uncertainty right now, and any big event could crash it all.

WarDores 7y ago
Agreed. The stock market is seen as a sure thing right now. It's a buying frenzy out there, even for companies that have zero fundamentals.
- lotsofpulp 7y ago
  Is it not a sure thing? Time and time again, the US government has been willing to sacrifice the value of the dollar to pump up the value of equities. Maybe the share price of certain companies decline, but the voters of the US have a vested interest in keeping equity prices high (401k, pension fund investments, etc). On top of that, the number of companies has been getting smaller and smaller, and the companies left are getting bigger and bigger. If anything, there is more systemic risk than before, and hence even more incentive for bailouts. As far as I can tell, the day the US stops bailing out equities, I imagine it will be in a weakened state where the USD no longer has reserve currency status, and there might be bigger problems to worry about than a recession. Until then, total stock market ETFs should do at least as well as inflation.
sigstoat 7y ago
> Everyone has stock everyone _should_ have stock; what reasonable investment plan doesn't have stock? you might as well hyperventilate about everyone having drawers full of socks.
- kart23 7y ago

sigstoat 7y ago

boomers have been retiring since before 2008. probably the ones with the most equities first.

md2be 7y ago

There is a bubble, it’s in the bond market. It’s has all the phases of a bible, including irrational exuberance.