10 ms·

Today in the U.S. we are in the fourth superbubble of the last hundred years

136 points by xqcgrek2 5y ago

stjohnswarts 5y ago
The thing is that the economy cannot go up and up forever. One of these guys will always be correct, and if you say something a couple of decades then you are bound to be right eventually.
oonerspism 5y ago
There are some compelling points in the article, however the particular picture he sees those points forming is not necessarily that seen by all. We have all heard convincing alternative views regarding some of the assertions made ; thus cynicism (in the form of curious research and discussion) may be warranted here, regardless of author credentials. "The stakes are high" is rarely truer after all, in the pure economic sense. Two points I considered additional: - Let us not forget, regarding Japan's past 30yr economic situation (oft-cited in the article), the important co-factor of Japan's virtually unchanging population since 1990... vs the World's cumulative 50% population increase since 1990, with wider Asia the major contributor. - I wonder how well 1929 really fits, in forming the group 1929-2000-2006-2021, called here "the 4 super-bubbles of the past century". What weighting it deserves within the set, considering it's anomalous temporal, cultural and political separation from the rest; perhaps reducing the already low n of the set around which the article hinges.
guard0g 5y ago
TLDR, gravity is a conservative force, and we are at the momentarily weightless stage.
melling 5y ago
To be clear Jeremy Grantham, has been saying we are in a bubble for years. He now says we are approaching the end of a “superbubble” The stock market at 2x US GDP has concerned many for quite some time https://www.forbes.com/sites/nicksargen/2021/09/02/us-stock-market-capitalization-at-2x-gdp-how-ominous-is-it/ https://www.forbes.com/sites/nicksargen/2021/09/02/us-stock-... The “Buffett indicator“ https://en.m.wikipedia.org/wiki/Buffett_indicator https://en.m.wikipedia.org/wiki/Buffett_indicator
- tim333 5y ago
  The market cap to US GDP indicator is probably a bit dated in that the world is so globalised these days so companies like Apple are getting a cut of global GDP rather than US GDP.
- xqcgrek2 5y ago
  He's one if the few big managers that managed to dodge the 1989 Japan bubble, the 2000 tech bubble and the 2008 housing bubble while still making money. Mean reversion is a powerful force.
  - lotsofpulp 5y ago
    He also missed out big time on tech companies’ growth after 2008, and made some bad investments in IBM and Kraft Heinz. Seems like the biggest thing propping up BRK returns is AAPL, which is currently 25% of BRK (by market cap).
    - deleted 5y ago
      [deleted]
    - adg001 5y ago
      He reaffirmed over and over again that he only invests within his sphere of competence and made clear that IT companies do not fall within the said sphere. Not investing in the said tech companies and remaining consistent to the markets he mastered best was a deliberate choice and one of the main reasons for his success.
- patrickthebold 5y ago
  If I have inflation fears, and I think we are in a stock bubble, where should I put my money. It seems like whatever you do there's more risk now than in the past. I'm genuinely asking. It seems like I'm being forced to make bets more so than 10 years ago.
  - lotsofpulp 5y ago
mupuff1234 5y ago
One of the (many) things I don't really understand is why whether the fed will raise interests rates or not is somewhat of an open question - Does anyone think these psychological games end up helping the economy long term? You'd think that in such a system stable planning & execution would one of the more important aspects.
- maxbond 5y ago
  > Does anyone think these psychological games end up helping the economy long term? Color me undecided, but I thought this argument was interesting. It's not directly related to the Fed, but it is about using mind games to benefit the economy. https://www.interfluidity.com/v2/2669.html https://www.interfluidity.com/v2/2669.html
- sokoloff 5y ago
  It’s a pivotal question because so many things are coupled to it (tightly or loosely). If you guess correctly and position your investments to be helped by the next Fed announcement, it’s worth real money. Note that no amount of changing the “openness” of this will help. If the Fed commits to announcing policy earlier, they make that commitment with less information and merely change the date on which investors’ outcomes are determined; there’s still value in predicting before whatever the new date is.
yold__ 5y ago
The wealthiest generation in U.S. history (boomers) are exiting the workforce, where will they park their retirement nest egg? Bonds and savings products (CDs etc) are paying historically low rates, and lose value as interest rates rise. There are few places for the typical boomer to park that capital other than the equity markets which have served them well for the last 30 years. It is unlikely they will exit the markets and hoard cash, especially with inflation fears. Jeremy Grantham has a megaphone right now. Every single news site keeps repeating this. They also ignore the fact that the guy is a perpetual doomsayer.
- leto_ii 5y ago
  > where will they park their retirement nest egg? I imagine a good part of it is already parked in stocks. But since it's s retirement nest egg and they're getting retired, won't they just start spending it?
  - yold__ 5y ago
    Typical draw-down rate is 3%-5% per year, so yes, very gradually.
- tryptophan 5y ago
  > The wealthiest generation in U.S. history (boomers) are exiting the workforce, where will they park their retirement nest egg? They will probably do what EU boomers in Spain, Greece, and Italy do, which is: suck as much money out of the younger generations as possible. Spain in particular is egregious. Older workers have every protection in the world, young have none. Pensions are 3x the salary of new workers. Taxes much higher on young people.
- gizmo686 5y ago
  > The wealthiest generation in U.S. history (boomers) are exiting the workforce, where will they park their retirement nest egg? This seems like a demographic argument for a downturn. Standard financial advice is to transition more into bonds as you approach and enter retirement. I suspect most boomers with retirement accounts will do so; either explicitly, because they are in a target date fund, or because their pension fund decides it needs to de-risk. The known downside of inflation is less of a concern than the risk of a loss if you are forced to sell during a downturn. However, I suspect that will be a relativly minor effect compared with the bigger issue. Workers park their retirement money. Retirees spend it. Demand (and therefore prices) of both stocks and bonds will fall as the boomers switch from buying to selling in order to fund their lifestyle without working. At a societal level, the idea of retirement savings is little more than an accounting trick. As a generation, the boomers are going to stop working, but continue consuming. Society needs to pay for that (in goods and services) somehow, which means that there will be comparatively less stuff available for everyone else.
slickrick216 5y ago
What’s the hedge for this bubble? Cause I’ll be honest looks like most if not all assets classes are going to take a hammering. There seems to be no safe ports available.
- m0llusk 5y ago
  Real wealth is the hedge. Organizations which through there operations generate greater value than they consume. Lots of these are doing badly right now, but they have the potential to endure and provide small but steady payouts during a correction when all the big players get called on their bets.
- hashimotonomora 5y ago
  Do something of intrinsic value.
- mdm12 5y ago
  To go with your shipping metaphor, a sinking tide sinks all boats...the best you can to is try to stay diversified in different asset classes.
- likecarter 5y ago
  Puts on the SP500 is the purest hedge there is.
- Ekaros 5y ago
  There might not be any hedge. If everything on market is over heated then there is really not much to avoid it. Maybe best bet is to choose some less overheated areas which are stable enough to carry through any type of upheaval.
- fullshark 5y ago
  Labor?
- baq 5y ago
  Long vol, as always. It might be a bit too late tho.
- 5y ago
cs702 5y ago
If you think we're in a bubble and you think you might be able to exit it at just the right time, I highly recommend you read "A Short History of Financial Euphoria" by John Kenneth Galbraith.[a] Here's one of my favorite passages from the book: > There are those who are persuaded that some new price-enhancing circumstance is in control, and they expect the market to stay up and go up, perhaps indefinitely. It is adjusting to a new situation, a new world of greatly, even infinitely increasing returns and resulting values. Then there are those, superficially more astute and generally fewer in number, who perceive or believe themselves to perceive the speculative mood of the moment. They are in to ride the upward wave; their particular genius, they are convinced, will allow them to get out before the speculation runs its course. They will get the maximum reward from the increase as it continues; they will be out before the eventual fall. > For built into this situation is the eventual and inevitable fall. Built in also is the circumstance that it cannot come gently or gradually. When it comes, it bears the grim face of disaster. That is because both of the groups of participants in the speculative situation are programmed for sudden efforts at escape. Something, it matters little what -- although it will always be much debated -- triggers the ultimate reversal. Those who had been riding the upward wave decide now is the time to get out. Those who thought the increase would be forever find their illusion destroyed abruptly, and they, also, respond to the newly revealed reality by selling or trying to sell. Thus the collapse. And thus the rule, supported by the experience of centuries: the speculative episode always ends not with a whimper but with a bang. There will be occasion to see the operation of this rule frequently repeated. > Although only a few observers have noted the vested interest in error that accompanies speculative euphoria, it is, nonetheless, an extremely plausible phenomenon. Those involved with the speculation are experiencing an increase in wealth -- getting rich or being further enriched. No one wishes to believe that this is fortuitous or undeserved; all wish to think that it is the result of their own superior insight or intuition. The very increase in values thus captures the thoughts and minds of those being rewarded. Speculation buys up, in a very practical way, the intelligence of those involved. > This is particularly true of the first group noted above -- those who are convinced that values are going up permanently and indefinitely. But the errors of vanity of those who think they will beat the speculative game are also thus reinforced. As long as they are in, they have a strong pecuniary commitment to belief in the unique personal intelligence that tells them there will be yet more. In the last century, one of the most astute observers of the euphoric episodes common to those years was Walter Bagehot, financial writer and early editor of The Economist. To him we are indebted for the observation that "all people are most credulous when they are most happy." Jeremy Grantham, the author of the OP, is the kind of person who never, ever wants to be in the first nor the second group. -- [a] https://www.amazon.com/History-Financial-Euphoria-Penguin-Business/dp/0140238565 https://www.amazon.com/History-Financial-Euphoria-Penguin-Bu...
yalogin 5y ago
One thing that is not clear is if the current run up has some inherent defect or economic malfunction it's relying on. Of course its a bubble because we don't know and we will know only when it pops. However, what I am trying to get at is, the economists and fed is acting as if the free money (at close to 0 rates) given over the last decade and even more so the last 2-3 yrs is causing this run up in prices. If that is the case and the fed raises rates, I saw another report which says the market always goes up when rates are raised -- https://www.marketwatch.com/story/get-ready-for-the-climb-heres-what-history-says-about-stock-market-returns-during-fed-rate-hike-cycles-11642248640 https://www.marketwatch.com/story/get-ready-for-the-climb-he... Point is, even though intuitively it feels like the bubble is close to popping we are not sure about it.
- tim333 5y ago
  There are a couple of reasons for popping now. Firstly some speculative stuff seems to have already peaked such as Quantumscape which he mentions. More fundamentally we have an issue with inflation. They can only really reign that back by raising rates which will be bad for the markets.
- ravenstine 5y ago
  If economists can't make reliable predictions any better than randos on HN, then aren't they all essentially frauds? I don't care ehat school they went to; the occupation of "economist" seems rather worthless in 2022. It's one of those fields where no one's feet is held to the fire, there's no accountability, and they can make up all sorts of specious predictions.
  - kzrdude 5y ago
    Maybe they can make reliable predictions but just not about the thing you ask about here - "the crash".
  - ilaksh 5y ago
    To me it's like, there is a special giant sports book in many large cities, but strangely, everyone treats the bookies like wise scholarly priests.
sega_sai 5y ago
It would be nice to have a registry of predictions about the stock market, so one could group them by person doing the predicting and their track record. Without that I personally cannot take seriously the stories about impeding stock market crash that appear basically all the time.
- m0llusk 5y ago
  This is in opposition to the nature of markets. It is possible to detect overhang, but impossible to predict when a correction will occur or what the trigger will be. Articles like this talk about the nature of overhang and how it is corrected. What you are talking about is when the correction happens and at what velocity which is something else well apart from what this article discusses and potentially impossible to predict.
- after_care 5y ago
  The market is full of bulls and bears, and a large portion of why the market behaves how it behaves is how people expect the market to behave. This is a persuasive piece, attempting to manifest the future.
- ReaLNero 5y ago
  Unfortunately, you still can't trust someone who's been correct every single time. Considering that there's thousands of people giving predictions, there's likely going to be one person "winning" the coinflips.
  - agilob 5y ago
    https://en.wikipedia.org/wiki/Hot_hand https://en.wikipedia.org/wiki/Hot_hand
- ilaksh 5y ago
  Maybe the reason they keep making that prediction is because historically it always crashes eventually.
- vitaflo 5y ago
popemarijuanavi 5y ago
[flagged]
jimmaswell 5y ago
I'll believe it when I see it. Economists have predicted 10 of the last 3 crashes and all that. Seems like a total crapshoot these days.
- libertine 5y ago
  Haven't "things" been looking off to you? I'm not an expert, farm from it, I'm just curious and I've been following some assets classes for some years now, and I have to say that some markets have been acting crazy for quite some time. And the pattern I've noticed was the shift from a type of investment, to a gamble. For example, the collectibles market became insane, like everyone - including kids - thinking they will make a bank on Pokemon cards. Try to buy some old Nintendo games - all of a sudden everyone became retro game players? Or they are just selling stuff to each other? Or maybe a new hoard of investors thinks they can gamble and make bank on older games? Real estate market the same thing, the amount of people that became millionaires because their house got a bump of 50%+ in value... even companies were willing to pay a premium to get access to housing. Stock market has been pushing through, with lots of gamble stocks popping. Either a big portion of the people got financially educated over the past few years a lot more people are smart investors and this is all normal because it's the price people are willing to pay to play the game in the long run, and this is all solid and sustainable, or a lot of these things are just bloated.
- throw0101a 5y ago
  > Economists have predicted 10 of the last 3 crashes and all that. There is some irony in this statement that many people do not realize. It was the economist Paul Samuelson that came up with the original saying: > To prove that Wall Street is an early omen of movements still to come in GNP, commentators quote economic studies alleging that market downturns predicted four out of the last five recessions. That is an understatement. Wall Street indexes predicted nine out of the last five recessions! And its mistakes were beauties.[18] * https://en.wikipedia.org/wiki/Paul_Samuelson#Aphorisms_and_quotations https://en.wikipedia.org/wiki/Paul_Samuelson#Aphorisms_and_q...
candiddevmike 5y ago
Anecdotally I sold all of my non retirement stocks and am sitting on cash. With climate change, an aging and contracting workforce, and asset bubbles due to the recent wealth transfers, I don't think we'll see these kind of stock market highs again without serious inflation. I'll ride it out until there's more information on the Fed's plan to stem inflation, maybe wait for the midterms to shake out too.
- ferdowsi 5y ago
  This is the short-term panic-selling mentality my older relatives engaged in after 2008, and now they can't retire.
  - candiddevmike 5y ago
    Unlike 2008, there are multiple existential threats against the current status quo of the market--labor unrests and progressive movements, rising inflation that must be reduced, a fed committing to raising interest rates, antitrust busting that could/should tear apart the top S&P companies, and uber drivers giving folks stock advice. Smells like a crash to me.
- i67vw3 5y ago
  Extra fiat/cash can be put into gold/silver.
  - candiddevmike 5y ago
    Any recommendations? Physical gold/silver?
    - moistly 5y ago
      It’d have to be physical, wouldn’t it? Otherwise it’s only a promise to give you the gold and a lot of pressure to accept some sort of exchange currency instead.
- throw0101a 5y ago
lumost 5y ago
I honestly wonder if the Fed knows that the only way out of the current predicament is to cause large scale inflation such that incomes and earnings "catch up" to asset prices. Playing the current situation forward a couple things could happen. 1. Asset prices stay elevated, rates rise but find equilibrium - those who own assets will get paid more, but those who rent or earn income from assets will have to give a greater share of their money to those who own. Millenials who as a generation only own 2% of assets will get locked out of asset ownership for another 10+ year economic cycle. Millenials find that they only start accumulating assets through inheritance - with the vast majority of the generation locked out of entrepreneurship and meaningful equity. 2. Inflation rises, asset prices relative to incomes fall. Retirees lose most of their wealth while income earners in the Millenial generation are able to buy into the economy through savings. Due to the imbalance in asset ownership millenials on the whole do not suffer from inflation, but benefit through higher wages. Retirees will suffer due to substantially reduced purchasing power over 10-20 years as inflation eats into their stored wealth. 3. Asset prices fall, wages don't rise - This looks like the deferred deleveraging of '08 Everyone takes a hit - with large bankruptcies wiping out asset prices and employment suffering during the downturn. The only positive is that wage earners would once again be able to buy into the economy. Given this outlook inflation seems like the best choice for policy makers. I'd doubt that it's sustainable to have an entire generation get locked out of the economy.
- kzrdude 5y ago
  Do their records go public after a number of years (guessing many, like 50)? It would be interesting to have discussions like this enter the historical record and be available to researchers too.
- herval 5y ago
  > I honestly wonder if the Fed knows that the only way out of the current predicament is to cause large scale inflation such that incomes and earnings "catch up" to asset prices. Playing the current situation forward a couple things could happen. I lived through periods of hyperinflation and constant high inflation, and in neither case income "caught up" with asset prices - in fact they made things much worse, throwing tons of people in absolute poverty. Where has this worked as a solution, historically?
tomerbd 5y ago
This is my favorite https://isthestockmarketgoingtocrash.com/ https://isthestockmarketgoingtocrash.com/
- ant6n 5y ago
  "Current risk: NaN / 10 (Sustainable Consumption)"
deleted 5y ago
[deleted]

136 points by xqcgrek2 5y ago

The thing is that the economy cannot go up and up forever. One of these guys will always be correct, and if you say something a couple of decades then you are bound to be right eventually.

oonerspism 5y ago

There are some compelling points in the article, however the particular picture he sees those points forming is not necessarily that seen by all. We have all heard convincing alternative views regarding some of the assertions made ; thus cynicism (in the form of curious research and discussion) may be warranted here, regardless of author credentials. "The stakes are high" is rarely truer after all, in the pure economic sense. Two points I considered additional: - Let us not forget, regarding Japan's past 30yr economic situation (oft-cited in the article), the important co-factor of Japan's virtually unchanging population since 1990... vs the World's cumulative 50% population increase since 1990, with wider Asia the major contributor. - I wonder how well 1929 really fits, in forming the group 1929-2000-2006-2021, called here "the 4 super-bubbles of the past century". What weighting it deserves within the set, considering it's anomalous temporal, cultural and political separation from the rest; perhaps reducing the already low n of the set around which the article hinges.

guard0g 5y ago

TLDR, gravity is a conservative force, and we are at the momentarily weightless stage.

melling 5y ago

To be clear Jeremy Grantham, has been saying we are in a bubble for years. He now says we are approaching the end of a “superbubble” The stock market at 2x US GDP has concerned many for quite some time https://www.forbes.com/sites/nicksargen/2021/09/02/us-stock-market-capitalization-at-2x-gdp-how-ominous-is-it/ https://www.forbes.com/sites/nicksargen/2021/09/02/us-stock-... The “Buffett indicator“ https://en.m.wikipedia.org/wiki/Buffett_indicator https://en.m.wikipedia.org/wiki/Buffett_indicator

tim333 5y ago
The market cap to US GDP indicator is probably a bit dated in that the world is so globalised these days so companies like Apple are getting a cut of global GDP rather than US GDP.
xqcgrek2 5y ago
He's one if the few big managers that managed to dodge the 1989 Japan bubble, the 2000 tech bubble and the 2008 housing bubble while still making money. Mean reversion is a powerful force.
- lotsofpulp 5y ago
  He also missed out big time on tech companies’ growth after 2008, and made some bad investments in IBM and Kraft Heinz. Seems like the biggest thing propping up BRK returns is AAPL, which is currently 25% of BRK (by market cap).
  - deleted 5y ago
    [deleted]
  - adg001 5y ago
    He reaffirmed over and over again that he only invests within his sphere of competence and made clear that IT companies do not fall within the said sphere. Not investing in the said tech companies and remaining consistent to the markets he mastered best was a deliberate choice and one of the main reasons for his success.
patrickthebold 5y ago
If I have inflation fears, and I think we are in a stock bubble, where should I put my money. It seems like whatever you do there's more risk now than in the past. I'm genuinely asking. It seems like I'm being forced to make bets more so than 10 years ago.
- lotsofpulp 5y ago

mupuff1234 5y ago

One of the (many) things I don't really understand is why whether the fed will raise interests rates or not is somewhat of an open question - Does anyone think these psychological games end up helping the economy long term? You'd think that in such a system stable planning & execution would one of the more important aspects.

maxbond 5y ago
> Does anyone think these psychological games end up helping the economy long term? Color me undecided, but I thought this argument was interesting. It's not directly related to the Fed, but it is about using mind games to benefit the economy. https://www.interfluidity.com/v2/2669.html https://www.interfluidity.com/v2/2669.html
sokoloff 5y ago
It’s a pivotal question because so many things are coupled to it (tightly or loosely). If you guess correctly and position your investments to be helped by the next Fed announcement, it’s worth real money. Note that no amount of changing the “openness” of this will help. If the Fed commits to announcing policy earlier, they make that commitment with less information and merely change the date on which investors’ outcomes are determined; there’s still value in predicting before whatever the new date is.

yold__ 5y ago

The wealthiest generation in U.S. history (boomers) are exiting the workforce, where will they park their retirement nest egg? Bonds and savings products (CDs etc) are paying historically low rates, and lose value as interest rates rise. There are few places for the typical boomer to park that capital other than the equity markets which have served them well for the last 30 years. It is unlikely they will exit the markets and hoard cash, especially with inflation fears. Jeremy Grantham has a megaphone right now. Every single news site keeps repeating this. They also ignore the fact that the guy is a perpetual doomsayer.

leto_ii 5y ago
> where will they park their retirement nest egg? I imagine a good part of it is already parked in stocks. But since it's s retirement nest egg and they're getting retired, won't they just start spending it?
- yold__ 5y ago
  Typical draw-down rate is 3%-5% per year, so yes, very gradually.
tryptophan 5y ago
> The wealthiest generation in U.S. history (boomers) are exiting the workforce, where will they park their retirement nest egg? They will probably do what EU boomers in Spain, Greece, and Italy do, which is: suck as much money out of the younger generations as possible. Spain in particular is egregious. Older workers have every protection in the world, young have none. Pensions are 3x the salary of new workers. Taxes much higher on young people.
gizmo686 5y ago
> The wealthiest generation in U.S. history (boomers) are exiting the workforce, where will they park their retirement nest egg? This seems like a demographic argument for a downturn. Standard financial advice is to transition more into bonds as you approach and enter retirement. I suspect most boomers with retirement accounts will do so; either explicitly, because they are in a target date fund, or because their pension fund decides it needs to de-risk. The known downside of inflation is less of a concern than the risk of a loss if you are forced to sell during a downturn. However, I suspect that will be a relativly minor effect compared with the bigger issue. Workers park their retirement money. Retirees spend it. Demand (and therefore prices) of both stocks and bonds will fall as the boomers switch from buying to selling in order to fund their lifestyle without working. At a societal level, the idea of retirement savings is little more than an accounting trick. As a generation, the boomers are going to stop working, but continue consuming. Society needs to pay for that (in goods and services) somehow, which means that there will be comparatively less stuff available for everyone else.

slickrick216 5y ago

What’s the hedge for this bubble? Cause I’ll be honest looks like most if not all assets classes are going to take a hammering. There seems to be no safe ports available.

m0llusk 5y ago
Real wealth is the hedge. Organizations which through there operations generate greater value than they consume. Lots of these are doing badly right now, but they have the potential to endure and provide small but steady payouts during a correction when all the big players get called on their bets.
hashimotonomora 5y ago
Do something of intrinsic value.
mdm12 5y ago
To go with your shipping metaphor, a sinking tide sinks all boats...the best you can to is try to stay diversified in different asset classes.
likecarter 5y ago
Puts on the SP500 is the purest hedge there is.
Ekaros 5y ago
There might not be any hedge. If everything on market is over heated then there is really not much to avoid it. Maybe best bet is to choose some less overheated areas which are stable enough to carry through any type of upheaval.
fullshark 5y ago
Labor?
baq 5y ago
Long vol, as always. It might be a bit too late tho.
5y ago

cs702 5y ago

If you think we're in a bubble and you think you might be able to exit it at just the right time, I highly recommend you read "A Short History of Financial Euphoria" by John Kenneth Galbraith.[a] Here's one of my favorite passages from the book: > There are those who are persuaded that some new price-enhancing circumstance is in control, and they expect the market to stay up and go up, perhaps indefinitely. It is adjusting to a new situation, a new world of greatly, even infinitely increasing returns and resulting values. Then there are those, superficially more astute and generally fewer in number, who perceive or believe themselves to perceive the speculative mood of the moment. They are in to ride the upward wave; their particular genius, they are convinced, will allow them to get out before the speculation runs its course. They will get the maximum reward from the increase as it continues; they will be out before the eventual fall. > For built into this situation is the eventual and inevitable fall. Built in also is the circumstance that it cannot come gently or gradually. When it comes, it bears the grim face of disaster. That is because both of the groups of participants in the speculative situation are programmed for sudden efforts at escape. Something, it matters little what -- although it will always be much debated -- triggers the ultimate reversal. Those who had been riding the upward wave decide now is the time to get out. Those who thought the increase would be forever find their illusion destroyed abruptly, and they, also, respond to the newly revealed reality by selling or trying to sell. Thus the collapse. And thus the rule, supported by the experience of centuries: the speculative episode always ends not with a whimper but with a bang. There will be occasion to see the operation of this rule frequently repeated. > Although only a few observers have noted the vested interest in error that accompanies speculative euphoria, it is, nonetheless, an extremely plausible phenomenon. Those involved with the speculation are experiencing an increase in wealth -- getting rich or being further enriched. No one wishes to believe that this is fortuitous or undeserved; all wish to think that it is the result of their own superior insight or intuition. The very increase in values thus captures the thoughts and minds of those being rewarded. Speculation buys up, in a very practical way, the intelligence of those involved. > This is particularly true of the first group noted above -- those who are convinced that values are going up permanently and indefinitely. But the errors of vanity of those who think they will beat the speculative game are also thus reinforced. As long as they are in, they have a strong pecuniary commitment to belief in the unique personal intelligence that tells them there will be yet more. In the last century, one of the most astute observers of the euphoric episodes common to those years was Walter Bagehot, financial writer and early editor of The Economist. To him we are indebted for the observation that "all people are most credulous when they are most happy." Jeremy Grantham, the author of the OP, is the kind of person who never, ever wants to be in the first nor the second group. -- [a] https://www.amazon.com/History-Financial-Euphoria-Penguin-Business/dp/0140238565 https://www.amazon.com/History-Financial-Euphoria-Penguin-Bu...

yalogin 5y ago

One thing that is not clear is if the current run up has some inherent defect or economic malfunction it's relying on. Of course its a bubble because we don't know and we will know only when it pops. However, what I am trying to get at is, the economists and fed is acting as if the free money (at close to 0 rates) given over the last decade and even more so the last 2-3 yrs is causing this run up in prices. If that is the case and the fed raises rates, I saw another report which says the market always goes up when rates are raised -- https://www.marketwatch.com/story/get-ready-for-the-climb-heres-what-history-says-about-stock-market-returns-during-fed-rate-hike-cycles-11642248640 https://www.marketwatch.com/story/get-ready-for-the-climb-he... Point is, even though intuitively it feels like the bubble is close to popping we are not sure about it.

tim333 5y ago
There are a couple of reasons for popping now. Firstly some speculative stuff seems to have already peaked such as Quantumscape which he mentions. More fundamentally we have an issue with inflation. They can only really reign that back by raising rates which will be bad for the markets.
ravenstine 5y ago
If economists can't make reliable predictions any better than randos on HN, then aren't they all essentially frauds? I don't care ehat school they went to; the occupation of "economist" seems rather worthless in 2022. It's one of those fields where no one's feet is held to the fire, there's no accountability, and they can make up all sorts of specious predictions.
- kzrdude 5y ago
  Maybe they can make reliable predictions but just not about the thing you ask about here - "the crash".
- ilaksh 5y ago
  To me it's like, there is a special giant sports book in many large cities, but strangely, everyone treats the bookies like wise scholarly priests.

sega_sai 5y ago

It would be nice to have a registry of predictions about the stock market, so one could group them by person doing the predicting and their track record. Without that I personally cannot take seriously the stories about impeding stock market crash that appear basically all the time.

m0llusk 5y ago
This is in opposition to the nature of markets. It is possible to detect overhang, but impossible to predict when a correction will occur or what the trigger will be. Articles like this talk about the nature of overhang and how it is corrected. What you are talking about is when the correction happens and at what velocity which is something else well apart from what this article discusses and potentially impossible to predict.
after_care 5y ago
The market is full of bulls and bears, and a large portion of why the market behaves how it behaves is how people expect the market to behave. This is a persuasive piece, attempting to manifest the future.
ReaLNero 5y ago
Unfortunately, you still can't trust someone who's been correct every single time. Considering that there's thousands of people giving predictions, there's likely going to be one person "winning" the coinflips.
- agilob 5y ago
  https://en.wikipedia.org/wiki/Hot_hand https://en.wikipedia.org/wiki/Hot_hand
ilaksh 5y ago
Maybe the reason they keep making that prediction is because historically it always crashes eventually.
vitaflo 5y ago

popemarijuanavi 5y ago

[flagged]

jimmaswell 5y ago

I'll believe it when I see it. Economists have predicted 10 of the last 3 crashes and all that. Seems like a total crapshoot these days.

libertine 5y ago
Haven't "things" been looking off to you? I'm not an expert, farm from it, I'm just curious and I've been following some assets classes for some years now, and I have to say that some markets have been acting crazy for quite some time. And the pattern I've noticed was the shift from a type of investment, to a gamble. For example, the collectibles market became insane, like everyone - including kids - thinking they will make a bank on Pokemon cards. Try to buy some old Nintendo games - all of a sudden everyone became retro game players? Or they are just selling stuff to each other? Or maybe a new hoard of investors thinks they can gamble and make bank on older games? Real estate market the same thing, the amount of people that became millionaires because their house got a bump of 50%+ in value... even companies were willing to pay a premium to get access to housing. Stock market has been pushing through, with lots of gamble stocks popping. Either a big portion of the people got financially educated over the past few years a lot more people are smart investors and this is all normal because it's the price people are willing to pay to play the game in the long run, and this is all solid and sustainable, or a lot of these things are just bloated.
throw0101a 5y ago
> Economists have predicted 10 of the last 3 crashes and all that. There is some irony in this statement that many people do not realize. It was the economist Paul Samuelson that came up with the original saying: > To prove that Wall Street is an early omen of movements still to come in GNP, commentators quote economic studies alleging that market downturns predicted four out of the last five recessions. That is an understatement. Wall Street indexes predicted nine out of the last five recessions! And its mistakes were beauties.[18] * https://en.wikipedia.org/wiki/Paul_Samuelson#Aphorisms_and_quotations https://en.wikipedia.org/wiki/Paul_Samuelson#Aphorisms_and_q...

candiddevmike 5y ago

Anecdotally I sold all of my non retirement stocks and am sitting on cash. With climate change, an aging and contracting workforce, and asset bubbles due to the recent wealth transfers, I don't think we'll see these kind of stock market highs again without serious inflation. I'll ride it out until there's more information on the Fed's plan to stem inflation, maybe wait for the midterms to shake out too.

ferdowsi 5y ago
This is the short-term panic-selling mentality my older relatives engaged in after 2008, and now they can't retire.
- candiddevmike 5y ago
  Unlike 2008, there are multiple existential threats against the current status quo of the market--labor unrests and progressive movements, rising inflation that must be reduced, a fed committing to raising interest rates, antitrust busting that could/should tear apart the top S&P companies, and uber drivers giving folks stock advice. Smells like a crash to me.
i67vw3 5y ago
Extra fiat/cash can be put into gold/silver.
- candiddevmike 5y ago
  Any recommendations? Physical gold/silver?
  - moistly 5y ago
    It’d have to be physical, wouldn’t it? Otherwise it’s only a promise to give you the gold and a lot of pressure to accept some sort of exchange currency instead.
throw0101a 5y ago

lumost 5y ago

I honestly wonder if the Fed knows that the only way out of the current predicament is to cause large scale inflation such that incomes and earnings "catch up" to asset prices. Playing the current situation forward a couple things could happen. 1. Asset prices stay elevated, rates rise but find equilibrium - those who own assets will get paid more, but those who rent or earn income from assets will have to give a greater share of their money to those who own. Millenials who as a generation only own 2% of assets will get locked out of asset ownership for another 10+ year economic cycle. Millenials find that they only start accumulating assets through inheritance - with the vast majority of the generation locked out of entrepreneurship and meaningful equity. 2. Inflation rises, asset prices relative to incomes fall. Retirees lose most of their wealth while income earners in the Millenial generation are able to buy into the economy through savings. Due to the imbalance in asset ownership millenials on the whole do not suffer from inflation, but benefit through higher wages. Retirees will suffer due to substantially reduced purchasing power over 10-20 years as inflation eats into their stored wealth. 3. Asset prices fall, wages don't rise - This looks like the deferred deleveraging of '08 Everyone takes a hit - with large bankruptcies wiping out asset prices and employment suffering during the downturn. The only positive is that wage earners would once again be able to buy into the economy. Given this outlook inflation seems like the best choice for policy makers. I'd doubt that it's sustainable to have an entire generation get locked out of the economy.

kzrdude 5y ago
Do their records go public after a number of years (guessing many, like 50)? It would be interesting to have discussions like this enter the historical record and be available to researchers too.
herval 5y ago
> I honestly wonder if the Fed knows that the only way out of the current predicament is to cause large scale inflation such that incomes and earnings "catch up" to asset prices. Playing the current situation forward a couple things could happen. I lived through periods of hyperinflation and constant high inflation, and in neither case income "caught up" with asset prices - in fact they made things much worse, throwing tons of people in absolute poverty. Where has this worked as a solution, historically?

tomerbd 5y ago

This is my favorite https://isthestockmarketgoingtocrash.com/ https://isthestockmarketgoingtocrash.com/

ant6n 5y ago
"Current risk: NaN / 10 (Sustainable Consumption)"

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