10 ms·

Long overdue. This 'everything bubble' needs to end. The sooner, the better.

by Incerto 2y ago

pier25 2y ago
Can you elaborate?
- next_xibalba 2y ago
  Some investors and economists have been saying for several years that there is an "everything bubble" that inflated in the ZIRP era–stocks, bonds, real estate, art, etc. Asset prices completely detached from their underlying intrinsic value. The belief is that zero interest rates have caused the inflation, and with the end of ZIRP, prices will collapse. Earliest reference to the term I can find dates back to 2017. To my knowledge, Jeremy Grantham, a famous investor, is the most prominent advocate of this theory.
  - frankharv 2y ago
    Don't forget about our upcoming AI-Bubble-boom-bust. To be deflated tomorrow morning around 9AM Curbs kick in around 9:00:01
    - qclibre22 2y ago
      S&P futures are down 1.4% at 10:57pm EDT. Markets open at 9:30am EDT.
    - gsky 2y ago
      Peopl always need some bubble to gamble around. AI has no competition at this point so its here to stay for a decade
- TheAlchemist 2y ago
  Not OP, but it's very simple - by historical standards, everything is crazy expensive, especially in the stock market, but not only (housing...). Home price to median household income ratio is at all time high - current generations have to work almost twice as long to pay a house, compared to their parents. S&P price / earnings ratio is around 27 now and it's been above 20 pretty much all the time since late 90s. In the past it was hovering between 10-20 usually - here is a chart: https://www.multpl.com/s-p-500-pe-ratio https://www.multpl.com/s-p-500-pe-ratio We have huge companies (the famous MAG 7) with PERs above 30. Given their scale, it's pretty much impossible to grow enough to reduce this PER significantly, unless we discover another planet with eager customers, or solve poverty worldwide. So while they do make a lot of cash, if you were to buy the whole business, you would need to wait 30 years for it to pay back for itself... I know people stopped thinking like that, and just hope the 'price will go up' and there will be a greater fool willing to buy even higher. But at some point, the music will stop, although nobody knows when though. And if you look at the history of when the music stops for the markets, it's not pretty.
  - s1artibartfast 2y ago
    There's nothing magic about the number 20 that makes it better than 30. The number it's just based on the marginal value of capital at the time. If there's enough capital built up and few enough opportunities, the per can go arbitrarily high.
    - Jensson 2y ago
      Cheaper is better, having to pay more for productive assets isn't a good thing.
      - s1artibartfast 2y ago
        It's a lot more complicated than that. There are advantages to having Capital chasing investments and high pER. As a thought experiment, consider what factors would have to be true for extremely cheap assets, say a PER of 1.
        Jensson 2y ago
        > As a thought experiment, consider what factors would have to be true for extremely cheap assets, say a PER of 1. The singularity? The bad things you are thinking about doesn't come from assets being cheap, they are flaws that causes the asset to be cheap for other reasons. All else being equal it is better when things are cheaper.
        s1artibartfast 2y ago
        I don't think it necessarily needs to invoke a singularity. It just means that the cost of capital is low relative to the value of goods produced. You can find examples of this today. If I am a small scale fisherman from a pier, I might be happy to sell my business for one year's revenue. The pole only costs $200, and the vast majority of the value is created through my time and labor. I'll be happy to recieve my annual earnings of say $20,000, sell you the business, buy a new pole and see you out on the pier tomorrow. Inversely, if I run a semiconductor Fab that billions of dollars in construction, the situation might be the opposite because there is a vast amount of value tied up in the infrastructure that is not represented in my earnings number.
- laidoffamazon 2y ago
  People that missed the boat want the boat to sink
csomar 2y ago
The Nikkei has only broke its last high from the 90s recently. When you consider inflation, it’s far from bubbly.
kristianp 2y ago
However, when share prices go backwards, governments start stimulating the economy, lowering interest rates, spending and increasing debt. Asset prices rise again and debt, both government and private continues to increase.
- rrrrrrrrrrrryan 2y ago
  Well in a downturn debt usually gets cycled from private holdings to public holdings. After the economy rights itself, governments should be eager to unwind their positions, but this doesn't always happen. The Fed has been doing some quantitative tightening for a while, and if we're now entering a proper recession, we'll soon get to see if they reloaded enough bullets.
zug_zug 2y ago
There's no such thing as an "everything bubble." All prices are relative. An everything bubble would basically be inflation which wouldn't justify moving any assets. You only need to move between assets when one is inflated relative to another (e.g. stock vs real-estate)

Long overdue. This 'everything bubble' needs to end. The sooner, the better.

pier25 2y ago

Can you elaborate?

next_xibalba 2y ago
Some investors and economists have been saying for several years that there is an "everything bubble" that inflated in the ZIRP era–stocks, bonds, real estate, art, etc. Asset prices completely detached from their underlying intrinsic value. The belief is that zero interest rates have caused the inflation, and with the end of ZIRP, prices will collapse. Earliest reference to the term I can find dates back to 2017. To my knowledge, Jeremy Grantham, a famous investor, is the most prominent advocate of this theory.
- frankharv 2y ago
  Don't forget about our upcoming AI-Bubble-boom-bust. To be deflated tomorrow morning around 9AM Curbs kick in around 9:00:01
  - qclibre22 2y ago
    S&P futures are down 1.4% at 10:57pm EDT. Markets open at 9:30am EDT.
  - gsky 2y ago
    Peopl always need some bubble to gamble around. AI has no competition at this point so its here to stay for a decade
TheAlchemist 2y ago
Not OP, but it's very simple - by historical standards, everything is crazy expensive, especially in the stock market, but not only (housing...). Home price to median household income ratio is at all time high - current generations have to work almost twice as long to pay a house, compared to their parents. S&P price / earnings ratio is around 27 now and it's been above 20 pretty much all the time since late 90s. In the past it was hovering between 10-20 usually - here is a chart: https://www.multpl.com/s-p-500-pe-ratio https://www.multpl.com/s-p-500-pe-ratio We have huge companies (the famous MAG 7) with PERs above 30. Given their scale, it's pretty much impossible to grow enough to reduce this PER significantly, unless we discover another planet with eager customers, or solve poverty worldwide. So while they do make a lot of cash, if you were to buy the whole business, you would need to wait 30 years for it to pay back for itself... I know people stopped thinking like that, and just hope the 'price will go up' and there will be a greater fool willing to buy even higher. But at some point, the music will stop, although nobody knows when though. And if you look at the history of when the music stops for the markets, it's not pretty.
- s1artibartfast 2y ago
  There's nothing magic about the number 20 that makes it better than 30. The number it's just based on the marginal value of capital at the time. If there's enough capital built up and few enough opportunities, the per can go arbitrarily high.
  - Jensson 2y ago
    Cheaper is better, having to pay more for productive assets isn't a good thing.
    - s1artibartfast 2y ago
      It's a lot more complicated than that. There are advantages to having Capital chasing investments and high pER. As a thought experiment, consider what factors would have to be true for extremely cheap assets, say a PER of 1.
      - Jensson 2y ago
        > As a thought experiment, consider what factors would have to be true for extremely cheap assets, say a PER of 1. The singularity? The bad things you are thinking about doesn't come from assets being cheap, they are flaws that causes the asset to be cheap for other reasons. All else being equal it is better when things are cheaper.
        s1artibartfast 2y ago
        I don't think it necessarily needs to invoke a singularity. It just means that the cost of capital is low relative to the value of goods produced. You can find examples of this today. If I am a small scale fisherman from a pier, I might be happy to sell my business for one year's revenue. The pole only costs $200, and the vast majority of the value is created through my time and labor. I'll be happy to recieve my annual earnings of say $20,000, sell you the business, buy a new pole and see you out on the pier tomorrow. Inversely, if I run a semiconductor Fab that billions of dollars in construction, the situation might be the opposite because there is a vast amount of value tied up in the infrastructure that is not represented in my earnings number.
laidoffamazon 2y ago
People that missed the boat want the boat to sink

csomar 2y ago

The Nikkei has only broke its last high from the 90s recently. When you consider inflation, it’s far from bubbly.

kristianp 2y ago

However, when share prices go backwards, governments start stimulating the economy, lowering interest rates, spending and increasing debt. Asset prices rise again and debt, both government and private continues to increase.

rrrrrrrrrrrryan 2y ago
Well in a downturn debt usually gets cycled from private holdings to public holdings. After the economy rights itself, governments should be eager to unwind their positions, but this doesn't always happen. The Fed has been doing some quantitative tightening for a while, and if we're now entering a proper recession, we'll soon get to see if they reloaded enough bullets.

zug_zug 2y ago

There's no such thing as an "everything bubble." All prices are relative. An everything bubble would basically be inflation which wouldn't justify moving any assets. You only need to move between assets when one is inflated relative to another (e.g. stock vs real-estate)