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I'm not a big fan of the TINA (There is no alternative), assertion. Sure, if you compare yields of stocks against bonds, they look relatively more attractive, b

I'm not a big fan of the TINA (There is no alternative), assertion. Sure, if you compare yields of stocks against bonds, they look relatively more attractive, but that's a strictly relative comparison. Even if bonds yield 0%, if you buy a stock that goes down 50%, as many did in the dotcom bubble, you've done much worse. Can stocks continue their historical run up? Sure. But we're pretty clearly one catalyst away from a major correction. Will that catalyst arise in the next year? Impossible to say, but it will come eventually. In an effort to save the economy, the Federal Reserve and Government have created a much bigger long-term problem. They've shown a willingness to prop up the stock market and removed all downside risk. Wealth inequality is ballooning to an all-time high due to large inflation of asset prices. Homes are less affordable than ever due to extraordinarily low interest rates. And when the Fed attempted to raise rates (2018 dip) and stocks dipped a few percent, they backed off totally. Years of asset price growth is happening in a few months, which is basically a wealth transfer from the investors of tomorrow to the asset holders of today. While government intervention has helped the real economy in the short-run, we're setting ourselves up for much bigger problems down the line.

thewarrior 6y ago
What catalyst could be bigger than covid ? I simply cannot imagine an economic hit bigger than covid. If this can’t crash stock prices nothing can.
- adam_arthur 6y ago
  Covid did cause the market to crash. It was one of the fastest crashes in stock market history. However, the federal reserve and government acted in tandem to enact the swiftest and largest economic response to an event like this in history. That's what drove the turnaround and led to the subsequent (and ongoing) bull market. However, the market is much frothier now (in certain segments) than before covid hit. For example, Tesla's value has increased by 10x from the March lows. Tesla is being priced as if it will be a near monopoly on both car sales and the self driving market, which is pretty clearly not true. Even though it may take legacy automakers or Apple a few years to catch up. There are less levers to pull than before. Interest rates are close to 0, congress has already passed trillions in new spending. Ability to counter a second dip will be more limited than before. A catalyst would be something like accounting fraud being uncovered in one of the growth stock darlings (ala Enron), or perhaps Tesla simply reporting numbers far below expectations. Volkswagen EVs are outselling Tesla in Europe for example, so the bull thesis of a monopolistic market position is a bit weak. Another catalyst could be unexpectedly high inflation, which would indicate the Federal reserve may raise rates soon. It's also entirely possible the market just trades close to flat for a few years until valuations level out into something more realistic. Is it possible that we're in a "new normal" where stocks are just valued higher than historical norms in perpetuity? Maybe, but when things look this frothy, the "new normal" thesis generally doesn't pan out.
  - milkytron 6y ago
    > Tesla is being priced as if it will be a near monopoly on both car sales and the self driving market, which is pretty clearly not true. It's unlikely that Tesla will be a car sales or self driving monopoly... but their charging network is by far the best, and they allow other manufacturers to use them. I think this, in addition to the car sales, self driving, and massive speculation is what is causing the stock price to be where it is.
    - adam_arthur 6y ago
      If they execute well and diversify enough, their valuation could become warranted in some years. However, I think it's likely that regulation will eventually prevent vendor lock-in/monopoly around charging stations. Imagine you could only go to some subset of gas stations, depending on which manufacturer you got your car from?
- jariel 6y ago
  COVID is a temporary shock. It's a dump on 1 years earnings, that everyone feels they can 'write off'. Investors/Fed/Gov may not see it as a secular shift. So as soon as they see light at the end of the tunnel, then it's 'a matter of time to normalcy' so a rush to get back into the money. A major war would be a different thing because it could mean a secular shift in the system. A massive housing bust as well, because nobody knows what comes afterwards.
  - Apocryphon 6y ago
    And what if COVID turns out not to be a temporary shock? Say worse strains mutate, vaccines fail, or another new disease catches on.
    - imtringued 6y ago
      Well, it's pretty obvious. If the disease wins it wins. It will kill people and that's all there is to it. Young people will argue that the victims were older people who had less lifespan left than them. It will also help with aging populations, retirement schemes and free up the housing market. Economically it might not be significant at all. I personally don't like to see people dying, I would want them to live a little bit longer even if they are a burden to me.
QuesnayJr 6y ago
The Fed did exactly what they needed to do. If the alternatives are a) housing prices go up, and then go down later as the Fed removes stimulus, or b) 30% unemployment, then the Fed should choose b. If asset prices crash later, that's not the Fed's problem. Their job is to prevent inflation and prevent unemployment. They've done that. The impact on the stock market is incidental.
- adam_arthur 6y ago
  Yes, the Fed is supposed to be concerned with inflation, but the CPI measure used to gauge inflation is not comprehensive enough. Inflation of assets, home prices, equities should be considered. Their mandate is not comprehensive enough. They've created a huge societal risk by effectively propping up companies that took on excessive risk or were otherwise poorly managed. Yes, they blunted unemployment in the short run, but excessive risk taking is now being rewarded, which has longer run consequences. It's natural and healthy for poorly run companies to fail in times of crises... it leads to strong companies surviving and more stability in the long run. They've also positioned it such that it will be very difficult to raise interest rates in a reasonable timeframe. When the next crisis comes, there are fewer levers to pull. Finally, it's pretty clear the Fed is watching the stock market closely, as they backed off on increasing rates after the market dipped in Dec 2018. Their actions show they aren't strictly abiding by their mandate (see also: they very recently changed their rules on what they consider unacceptably high inflation)
  - QuesnayJr 6y ago
    They clarified their rules -- before they just said "2%", but they switched to "an average of 2% over some period". It's not like they switched to an inflation target of 20%. Having inflation be below 2% for long periods of time is not something that ever came up before 2008, and the Fed is promising that they won't remove stimulus too soon. I don't agree that companies failing in a recession is "natural". I guess COVID is natural, but a restaurant business that goes under because their customers are temporarily afraid of dying is not a result of being poorly run, but of bad luck. I also don't agree that there is too much risk taking -- rather I think there is too little. High interest rates on government debt rewards lazy investors who don't want to work to find good investments.

thewarrior 6y ago

What catalyst could be bigger than covid ? I simply cannot imagine an economic hit bigger than covid. If this can’t crash stock prices nothing can.

adam_arthur 6y ago
Covid did cause the market to crash. It was one of the fastest crashes in stock market history. However, the federal reserve and government acted in tandem to enact the swiftest and largest economic response to an event like this in history. That's what drove the turnaround and led to the subsequent (and ongoing) bull market. However, the market is much frothier now (in certain segments) than before covid hit. For example, Tesla's value has increased by 10x from the March lows. Tesla is being priced as if it will be a near monopoly on both car sales and the self driving market, which is pretty clearly not true. Even though it may take legacy automakers or Apple a few years to catch up. There are less levers to pull than before. Interest rates are close to 0, congress has already passed trillions in new spending. Ability to counter a second dip will be more limited than before. A catalyst would be something like accounting fraud being uncovered in one of the growth stock darlings (ala Enron), or perhaps Tesla simply reporting numbers far below expectations. Volkswagen EVs are outselling Tesla in Europe for example, so the bull thesis of a monopolistic market position is a bit weak. Another catalyst could be unexpectedly high inflation, which would indicate the Federal reserve may raise rates soon. It's also entirely possible the market just trades close to flat for a few years until valuations level out into something more realistic. Is it possible that we're in a "new normal" where stocks are just valued higher than historical norms in perpetuity? Maybe, but when things look this frothy, the "new normal" thesis generally doesn't pan out.
- milkytron 6y ago
  > Tesla is being priced as if it will be a near monopoly on both car sales and the self driving market, which is pretty clearly not true. It's unlikely that Tesla will be a car sales or self driving monopoly... but their charging network is by far the best, and they allow other manufacturers to use them. I think this, in addition to the car sales, self driving, and massive speculation is what is causing the stock price to be where it is.
  - adam_arthur 6y ago
    If they execute well and diversify enough, their valuation could become warranted in some years. However, I think it's likely that regulation will eventually prevent vendor lock-in/monopoly around charging stations. Imagine you could only go to some subset of gas stations, depending on which manufacturer you got your car from?
jariel 6y ago
COVID is a temporary shock. It's a dump on 1 years earnings, that everyone feels they can 'write off'. Investors/Fed/Gov may not see it as a secular shift. So as soon as they see light at the end of the tunnel, then it's 'a matter of time to normalcy' so a rush to get back into the money. A major war would be a different thing because it could mean a secular shift in the system. A massive housing bust as well, because nobody knows what comes afterwards.
- Apocryphon 6y ago
  And what if COVID turns out not to be a temporary shock? Say worse strains mutate, vaccines fail, or another new disease catches on.
  - imtringued 6y ago
    Well, it's pretty obvious. If the disease wins it wins. It will kill people and that's all there is to it. Young people will argue that the victims were older people who had less lifespan left than them. It will also help with aging populations, retirement schemes and free up the housing market. Economically it might not be significant at all. I personally don't like to see people dying, I would want them to live a little bit longer even if they are a burden to me.

QuesnayJr 6y ago

The Fed did exactly what they needed to do. If the alternatives are a) housing prices go up, and then go down later as the Fed removes stimulus, or b) 30% unemployment, then the Fed should choose b. If asset prices crash later, that's not the Fed's problem. Their job is to prevent inflation and prevent unemployment. They've done that. The impact on the stock market is incidental.

adam_arthur 6y ago
Yes, the Fed is supposed to be concerned with inflation, but the CPI measure used to gauge inflation is not comprehensive enough. Inflation of assets, home prices, equities should be considered. Their mandate is not comprehensive enough. They've created a huge societal risk by effectively propping up companies that took on excessive risk or were otherwise poorly managed. Yes, they blunted unemployment in the short run, but excessive risk taking is now being rewarded, which has longer run consequences. It's natural and healthy for poorly run companies to fail in times of crises... it leads to strong companies surviving and more stability in the long run. They've also positioned it such that it will be very difficult to raise interest rates in a reasonable timeframe. When the next crisis comes, there are fewer levers to pull. Finally, it's pretty clear the Fed is watching the stock market closely, as they backed off on increasing rates after the market dipped in Dec 2018. Their actions show they aren't strictly abiding by their mandate (see also: they very recently changed their rules on what they consider unacceptably high inflation)
- QuesnayJr 6y ago
  They clarified their rules -- before they just said "2%", but they switched to "an average of 2% over some period". It's not like they switched to an inflation target of 20%. Having inflation be below 2% for long periods of time is not something that ever came up before 2008, and the Fed is promising that they won't remove stimulus too soon. I don't agree that companies failing in a recession is "natural". I guess COVID is natural, but a restaurant business that goes under because their customers are temporarily afraid of dying is not a result of being poorly run, but of bad luck. I also don't agree that there is too much risk taking -- rather I think there is too little. High interest rates on government debt rewards lazy investors who don't want to work to find good investments.