3 ms·

...when compared only to bonds (which currently governments are pushing to zero yield). By any other measure they look far too expensive for the current econom

...when compared only to bonds (which currently governments are pushing to zero yield). By any other measure they look far too expensive for the current economic outlook.

AnimalMuppet 6y ago
Right, but if I'm trying to buy a return, what are my options? Stocks, bonds, some kinds of real estate, and maybe annuities. But annuities basically track with bonds. For the segment that is trying to buy a return, and doesn't want the hassle of managing rental property, stocks and bonds are pretty much the only games there are. So, at least for them, the question is: How much does it take to buy a given return? The question isn't the only one in investing, but it's also not an insane way of looking at the market...
- grey-area 6y ago
  I completely agree the current irrational exuberance in stock markets is caused by the artificially depressed yields on bonds - it is yet another unintended consequence of QE. You haven't mentioned risk though - this is a very risky game and the more mispriced assets get the riskier it is. What happens when interest rates rise?
- anm89 6y ago
  I want to buy a bicycle but bicycles cost $10k right now because of a parts shortage. But what if I want a bike, and also car would be $20k, so actually bicycles are pretty cheap! At the end of the day though, when the short term situation resolves itself, that bike is still worth $500 and it wasn't cheap. I think the fallacy here is that you don't HAVE to buy returns. You could choose to just eat the inflation or pick an alternative asset class.
  - imtringued 6y ago
    The idea would be to invest into bicycle companies to make money off the shortage which encourages more companies to make bicycles effectively solving the shortage.
  - AnimalMuppet 6y ago
    You don't have to buy returns if you're a wealthy individual. You kind of do have to if you're, say, a pension fund.
    - anm89 6y ago
      that is actually very good point. In the case of the pension fund I guess you do just pick the relatively cheapest option regardless of what you feel is the broader situation. On the other hand that is insanity and has the potential of turning into a humanitarian crisis IMO but I guess we'll see how that plays out.
      - AnimalMuppet 6y ago
        You mean, if they bought the return but then lost the principal when the price declined? Yes, it could.
        anm89 6y ago
        Right, like imagine a majority of all American pensions busting out at once because they all roughly bought SPY and QQQ and then we have some major bubble burst that takes more than a few years to resolve itself and those indices are down 40% for 5 years. If 3% returns is not fully covered, -30% returns would have to be an existential crisis. I would imagine many retired government workers would end out on the streets or instead they will print an ungodly amount of money to paper over and shift it into a different problem.

...when compared only to bonds (which currently governments are pushing to zero yield). By any other measure they look far too expensive for the current economic outlook.

AnimalMuppet 6y ago

Right, but if I'm trying to buy a return, what are my options? Stocks, bonds, some kinds of real estate, and maybe annuities. But annuities basically track with bonds. For the segment that is trying to buy a return, and doesn't want the hassle of managing rental property, stocks and bonds are pretty much the only games there are. So, at least for them, the question is: How much does it take to buy a given return? The question isn't the only one in investing, but it's also not an insane way of looking at the market...

grey-area 6y ago
I completely agree the current irrational exuberance in stock markets is caused by the artificially depressed yields on bonds - it is yet another unintended consequence of QE. You haven't mentioned risk though - this is a very risky game and the more mispriced assets get the riskier it is. What happens when interest rates rise?
anm89 6y ago
I want to buy a bicycle but bicycles cost $10k right now because of a parts shortage. But what if I want a bike, and also car would be $20k, so actually bicycles are pretty cheap! At the end of the day though, when the short term situation resolves itself, that bike is still worth $500 and it wasn't cheap. I think the fallacy here is that you don't HAVE to buy returns. You could choose to just eat the inflation or pick an alternative asset class.
- imtringued 6y ago
  The idea would be to invest into bicycle companies to make money off the shortage which encourages more companies to make bicycles effectively solving the shortage.
- AnimalMuppet 6y ago
  You don't have to buy returns if you're a wealthy individual. You kind of do have to if you're, say, a pension fund.
  - anm89 6y ago
    that is actually very good point. In the case of the pension fund I guess you do just pick the relatively cheapest option regardless of what you feel is the broader situation. On the other hand that is insanity and has the potential of turning into a humanitarian crisis IMO but I guess we'll see how that plays out.
    - AnimalMuppet 6y ago
      You mean, if they bought the return but then lost the principal when the price declined? Yes, it could.
      - anm89 6y ago
        Right, like imagine a majority of all American pensions busting out at once because they all roughly bought SPY and QQQ and then we have some major bubble burst that takes more than a few years to resolve itself and those indices are down 40% for 5 years. If 3% returns is not fully covered, -30% returns would have to be an existential crisis. I would imagine many retired government workers would end out on the streets or instead they will print an ungodly amount of money to paper over and shift it into a different problem.