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There is something different this time. People en masse have started using the S&P 500 and other index funds as a long term store of value. Large amounts of mo

There is something different this time. People en masse have started using the S&P 500 and other index funds as a long term store of value. Large amounts of money buy these stocks every pay period with zero regard to performance or current market conditions. As far as I'm aware, this has never happened before. We don't know how this experiment will change the market long term or whether it will eventually collapse.

cblconfederate 6y ago
> a long term store of value Or a short term way to escape moneyprinting and inflation until the rates become sane.
pm90 6y ago
You're absolutely right, its not the same and it will likely fail in ways we can't predict just yet. The 2008 crisis taught the US Federal Reserve how to respond to an economic crisis effectively, and they've been pretty successful at managing the current one. Note that Fed's main concerns are macroeconomic, so their assistance necessarily goes mostly to larger corporations and financial institutions, which seem to be doing OK (smaller businesses are suffering, but Congress stepped in for them... somewhat). I don't anticipate a liquidity shortage-triggered panic + recession like 2008. However, all asset prices seem to be inflated. Real estate, crypto, stocks... all going up and up. They can't do so forever, it will be interesting to see how it fails this time.
- vmception 6y ago
  When you tie pricing metrics to interest rates, they are either not inflated or not that inflated. You have to account for the amount of money in the system and how that money seeks to beat inflation. You can't just pick up 40-year old chart analysis books and say "aha the P/E ratio for this sector is higher than normal", it is all part of an ecosystem. The macroeconomic policy is going to be a greater influence than any chart-based psychology proxy or seeing how many essential workers are talking about investing their spare change. Right now, more money is going to be created or distributed in the trillions. If the Central Banks are instructed to be involved, or chose to be involved, their method of getting new money into the market will be by purchasing more bonds which pushes interest rates even lower. The only thing this didn't predict were new ephemeral asset classes, crypto. That people are opting to buy.
- Animats 6y ago
  You're absolutely right, its not the same and it will likely fail in ways we can't predict just yet. Yes. We haven't yet had a bubble collapse in a time of zero or negative real interest rates. When it happens, cutting interest rates will not be an option. That option has been used up.
  - anonisko 6y ago
    Like a junkie chasing that first high. You keep needing more and more but never get close to the first, until suddenly you wake up and realizing your life collapsed around you and your drug doesn't work at all anymore.
jasonkester 6y ago
As far as I'm aware, this has never happened before No worries. We can fix that. I first heard the argument you made used to explain why the market would continue to go up indefinitely in the late 90’s. But that’s only because I was old enough to pay attention then. I don’t doubt in the least that it was used in the 80’s as well.
baxtr 6y ago
It’s different every time, isn’t it? World War II was different, the oil crisis in the 70s was different, debt in the 80s, doctom bubble in the 90s, the financial crisis was really different, and now this pandemic and the sheer volumes of money. It’s different every time, but economic growth has been a constant and tied to this are ultimately the prices of securities. That’s not gonna be different. So it’s a very sane choice to invest in a broad ETF eg based on the S&P.
- CuriouslyC 6y ago
  Index funds are a good, safe set and forget option. In boring times, the performance is not much worse and even sometimes better. In times of upheaval though, the high volatility makes active trading MUCH more profitable.
  - baxtr 6y ago
    Absolutely. At the same time it’s also much riskier.
  - alisonkisk 6y ago
    Equities are a good investment because that's where government bailout money goes. Until one day it stops or until enough rich/richish people try to sell equities for consumption it real assets (like building a house) and then the bottom falls out.
  - jfengel 6y ago
    At least, they always have been. With many people pouring money into them solely because they're "safe", it's possible that they have managed to turn a safe investment into a risky one,a la mortgages in the 2000s. Currently the S&P 500 has a P/E of 40, a number it historically hits before crashes. Of course the pandemic makes that figure less meaningful long term than it already is, but even before the pandemic it was well above a justified level. I have no better advice for people. I have theories on why it's overpriced, but I am also invested in broad indexes for lack of a better idea. But it may just be that the long-standing advice has become dated.
  - 6y ago
rsynnott 6y ago
> There is something different this time. There always is. And then, abruptly, there isn’t anymore.
ivanche 6y ago
> There is something different this time. Do you know which are the 4 most expensive words in English? "This time it's different."

cblconfederate 6y ago

> a long term store of value Or a short term way to escape moneyprinting and inflation until the rates become sane.

pm90 6y ago

You're absolutely right, its not the same and it will likely fail in ways we can't predict just yet. The 2008 crisis taught the US Federal Reserve how to respond to an economic crisis effectively, and they've been pretty successful at managing the current one. Note that Fed's main concerns are macroeconomic, so their assistance necessarily goes mostly to larger corporations and financial institutions, which seem to be doing OK (smaller businesses are suffering, but Congress stepped in for them... somewhat). I don't anticipate a liquidity shortage-triggered panic + recession like 2008. However, all asset prices seem to be inflated. Real estate, crypto, stocks... all going up and up. They can't do so forever, it will be interesting to see how it fails this time.

vmception 6y ago
When you tie pricing metrics to interest rates, they are either not inflated or not that inflated. You have to account for the amount of money in the system and how that money seeks to beat inflation. You can't just pick up 40-year old chart analysis books and say "aha the P/E ratio for this sector is higher than normal", it is all part of an ecosystem. The macroeconomic policy is going to be a greater influence than any chart-based psychology proxy or seeing how many essential workers are talking about investing their spare change. Right now, more money is going to be created or distributed in the trillions. If the Central Banks are instructed to be involved, or chose to be involved, their method of getting new money into the market will be by purchasing more bonds which pushes interest rates even lower. The only thing this didn't predict were new ephemeral asset classes, crypto. That people are opting to buy.
Animats 6y ago
You're absolutely right, its not the same and it will likely fail in ways we can't predict just yet. Yes. We haven't yet had a bubble collapse in a time of zero or negative real interest rates. When it happens, cutting interest rates will not be an option. That option has been used up.
- anonisko 6y ago
  Like a junkie chasing that first high. You keep needing more and more but never get close to the first, until suddenly you wake up and realizing your life collapsed around you and your drug doesn't work at all anymore.

jasonkester 6y ago

As far as I'm aware, this has never happened before No worries. We can fix that. I first heard the argument you made used to explain why the market would continue to go up indefinitely in the late 90’s. But that’s only because I was old enough to pay attention then. I don’t doubt in the least that it was used in the 80’s as well.

baxtr 6y ago

It’s different every time, isn’t it? World War II was different, the oil crisis in the 70s was different, debt in the 80s, doctom bubble in the 90s, the financial crisis was really different, and now this pandemic and the sheer volumes of money. It’s different every time, but economic growth has been a constant and tied to this are ultimately the prices of securities. That’s not gonna be different. So it’s a very sane choice to invest in a broad ETF eg based on the S&P.

CuriouslyC 6y ago
Index funds are a good, safe set and forget option. In boring times, the performance is not much worse and even sometimes better. In times of upheaval though, the high volatility makes active trading MUCH more profitable.
- baxtr 6y ago
  Absolutely. At the same time it’s also much riskier.
- alisonkisk 6y ago
  Equities are a good investment because that's where government bailout money goes. Until one day it stops or until enough rich/richish people try to sell equities for consumption it real assets (like building a house) and then the bottom falls out.
- jfengel 6y ago
  At least, they always have been. With many people pouring money into them solely because they're "safe", it's possible that they have managed to turn a safe investment into a risky one,a la mortgages in the 2000s. Currently the S&P 500 has a P/E of 40, a number it historically hits before crashes. Of course the pandemic makes that figure less meaningful long term than it already is, but even before the pandemic it was well above a justified level. I have no better advice for people. I have theories on why it's overpriced, but I am also invested in broad indexes for lack of a better idea. But it may just be that the long-standing advice has become dated.
- 6y ago

rsynnott 6y ago

> There is something different this time. There always is. And then, abruptly, there isn’t anymore.

ivanche 6y ago

> There is something different this time. Do you know which are the 4 most expensive words in English? "This time it's different."