4 ms·

Well, for stocks, the P/E ratio is also extraordinarily high, so it's not inflation there. At least not mostly. The stock market is just overvalued and there wi

Well, for stocks, the P/E ratio is also extraordinarily high, so it's not inflation there. At least not mostly. The stock market is just overvalued and there will be a correction at some point in the future.

vkou 6y ago
For t -> ∞, a prediction that the stock market will correct in the future will always hold true. The question is, will it correct to levels below its current ones? If you have an answer to that, you can make a lot of money.
- scsilver 6y ago
  I'm not gonna bet against the fed. Im not going to bet against politicians protecting retirement accounts and personal homes. I've got 30 more years until I get out of the market, might as well hedge against the dollar, only take out a bit to get a down payment on a home in a nice area, and try to catch the capitalist wave. If you stayed in through 2008 till now, you'd be doing perfectly fine. If you had to take out money right after the collapse, ouch. Ultimately your portfolio risk should reflect the cash needs of your age/health/lifestyle in the context of the economics of the time. However, we are in uncharted waters.
  - leg100 6y ago
    > I'm not gonna bet against the fed. Im not going to bet against politicians protecting retirement accounts and personal homes. I'll take a punt. At some point inflation will take root, and when it does the fed will be in a bind. Hell, the fed has already been digging away at pensions with their 40 year long put. Pensions funds struggle now to find a positive yield that meets their liabilities. And homes will at some point come under attack. Perhaps only when everything else is gone, perhaps not. They're a sitting target.
    - scsilver 6y ago
      From my viewpoint in history, the homes will be the last thing to get attacked, politicians can't stomach another 08 and we know how to print our way out. If the dollar manages to fend off devaluation due to entended printing(crosses fingers and hopes the world trusts us more than any other currency to pay back our debt) the US may get out of this, ahead of other economies. The people really holding bag havent even entered the workforce, many havent even been born yet.
beefield 6y ago
That kind of is asset inflation. You get smaller share of the company with same amount of money than before.
pauldickwin 6y ago
I am just wondering if the PE ratio became extraordinarily high because high growth tech companies now are a major part of all of the large indices. Did you ever think about that?
- deleted 6y ago
  [deleted]
- matthewbauer 6y ago
  That's definitely the cause of it, but it doesn't make sense to me. Once you're on S&P 500, how much growth can you realistically do? I don't see why investors don't make Google & Apple pay dividends.
  - svachalek 6y ago
    Apple does pay dividends, has for years. Is also buying back a lot of stock which is another form of investor return. Google does buybacks too but on a less systematic basis afaik.
  - jakub_g 6y ago
    Apple does pay dividends. Google and Amazon do not. https://www.nasdaq.com/market-activity/stocks/aapl/dividend-history https://www.nasdaq.com/market-activity/stocks/aapl/dividend-... Regarding dividends, in theory when company spends $1 per share on a dividend, its stock price should go down by $1 to compensate for this. So receiving a dividend is kind of like forced selling a small portion of your stock (except that you don't pay the transaction fee).
AnimalMuppet 6y ago
I think a big part of the runup of stocks has been the low interest rates. That is: I've got some money to invest. As far as rate of return goes, a stock at a P/E of 10 is about the same as a bond paying 10% interest. (Yes, the stock can go up in price. It can also go down. And so can the bond - when interest rates change, bond prices change. But stock prices factor in expectations of future earnings changes, which bond prices usually don't.) Now bonds are only paying 4%. That stock P/E of 10 looks really good - so good that people keep buying it, and the price keeps going up, until the P/E is more like 25, which puts it back at approximately the same yield as bonds.

vkou 6y ago

For t -> ∞, a prediction that the stock market will correct in the future will always hold true. The question is, will it correct to levels below its current ones? If you have an answer to that, you can make a lot of money.

scsilver 6y ago
I'm not gonna bet against the fed. Im not going to bet against politicians protecting retirement accounts and personal homes. I've got 30 more years until I get out of the market, might as well hedge against the dollar, only take out a bit to get a down payment on a home in a nice area, and try to catch the capitalist wave. If you stayed in through 2008 till now, you'd be doing perfectly fine. If you had to take out money right after the collapse, ouch. Ultimately your portfolio risk should reflect the cash needs of your age/health/lifestyle in the context of the economics of the time. However, we are in uncharted waters.
- leg100 6y ago
  > I'm not gonna bet against the fed. Im not going to bet against politicians protecting retirement accounts and personal homes. I'll take a punt. At some point inflation will take root, and when it does the fed will be in a bind. Hell, the fed has already been digging away at pensions with their 40 year long put. Pensions funds struggle now to find a positive yield that meets their liabilities. And homes will at some point come under attack. Perhaps only when everything else is gone, perhaps not. They're a sitting target.
  - scsilver 6y ago
    From my viewpoint in history, the homes will be the last thing to get attacked, politicians can't stomach another 08 and we know how to print our way out. If the dollar manages to fend off devaluation due to entended printing(crosses fingers and hopes the world trusts us more than any other currency to pay back our debt) the US may get out of this, ahead of other economies. The people really holding bag havent even entered the workforce, many havent even been born yet.

beefield 6y ago

That kind of is asset inflation. You get smaller share of the company with same amount of money than before.

pauldickwin 6y ago

I am just wondering if the PE ratio became extraordinarily high because high growth tech companies now are a major part of all of the large indices. Did you ever think about that?

deleted 6y ago
[deleted]
matthewbauer 6y ago
That's definitely the cause of it, but it doesn't make sense to me. Once you're on S&P 500, how much growth can you realistically do? I don't see why investors don't make Google & Apple pay dividends.
- svachalek 6y ago
  Apple does pay dividends, has for years. Is also buying back a lot of stock which is another form of investor return. Google does buybacks too but on a less systematic basis afaik.
- jakub_g 6y ago
  Apple does pay dividends. Google and Amazon do not. https://www.nasdaq.com/market-activity/stocks/aapl/dividend-history https://www.nasdaq.com/market-activity/stocks/aapl/dividend-... Regarding dividends, in theory when company spends $1 per share on a dividend, its stock price should go down by $1 to compensate for this. So receiving a dividend is kind of like forced selling a small portion of your stock (except that you don't pay the transaction fee).

AnimalMuppet 6y ago

I think a big part of the runup of stocks has been the low interest rates. That is: I've got some money to invest. As far as rate of return goes, a stock at a P/E of 10 is about the same as a bond paying 10% interest. (Yes, the stock can go up in price. It can also go down. And so can the bond - when interest rates change, bond prices change. But stock prices factor in expectations of future earnings changes, which bond prices usually don't.) Now bonds are only paying 4%. That stock P/E of 10 looks really good - so good that people keep buying it, and the price keeps going up, until the P/E is more like 25, which puts it back at approximately the same yield as bonds.