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Chart one, DJIA, 1982 to 2014: http://i.imgur.com/29GT453.png http://i.imgur.com/29GT453.png Note that it's even higher now on the end of that chart, so push i

Chart one, DJIA, 1982 to 2014: http://i.imgur.com/29GT453.png http://i.imgur.com/29GT453.png Note that it's even higher now on the end of that chart, so push it to 18,000 and you've got the comparison. That chart, at a bare minimum, whether you think we're dealing with "irrational exuberance" or not, should tell you that we're in an exceptional period in the stock market. Chart two, federal funds rate, 1954 through 2009: http://upload.wikimedia.org/wikipedia/commons/thumb/3/31/Federal_Funds_Rate_1954_thru_2009_effective.svg/640px-Federal_Funds_Rate_1954_thru_2009_effective.svg.png http://upload.wikimedia.org/wikipedia/commons/thumb/3/31/Fed... That funds rate is still that low. Whether you think it's too low or not, it's pretty obvious that this is an exceptional period for access to low-interest money. I'm watching the real estate market spike up much faster than wages (again), and billions get poured into tech companies who's business model really just isn't there and/or heavily depends on advertising (advertising rates collapsed after 2000, by a lot). I was worried about the valuations a year ago, and now they're even higher. And of course, it's pushing a lot of private valuations up too. The more money publicly traded corporations have, the better your chances of selling a private company at a high value, or going public without good fundamentals. I think there's just too much money sloshing around right now. Excess money doesn't go into CPI anymore, it more often creates valuation fevers. I don't think the overnight rates should have been this low for so long. And I'm pretty worried about what's going to happen when they finally start raising them, but not as worried as what happens if they continue to leave them as-is.

EliRivers 11y ago
Chart one, DJIA, adjusted for inflation: http://home.earthlink.net/~intelligentbear/dj-lt-infl.gif http://home.earthlink.net/~intelligentbear/dj-lt-infl.gif When you take inflation into account, it doesn't look nearly so interesting.
- MarkPNeyer 11y ago
  it actually looks like things are getting _more_ stable.
- Pxtl 11y ago
  Much better. Also logarithmic, which was another failing of the above graph. With a line of best fit! Yes, if the market is overinflated, it's because growth itself has failed to happen.
- Retric 11y ago
  A Lograthmic chart is much better, but when you add in dividend reinvestment and inflation adjustment you get a vary different chart.
- dpierce9 11y ago
  ^This. If you don't take into account inflation and don't plot on a log scale, you can't make any sense of a long term stock or bond price chart. It really doesn't make any sense (though it would be nice if this chart were also a broader index).
- solomatov 11y ago
  DIJA chart doesn't include reinvested dividends.
cylinder 11y ago
We need to get back to normal interest rates asap. The whole situation has become absurd, every single asset class is ridiculous. Force policymakers to make real changes that boost global growth, not simply lazy monetary policy. When the wealthy stop getting so rich by frothy asset prices, they'll clamor for it too. In this case I'm not too worried about public equities, it seems to be everything else right now.
- VLM 11y ago
  That interest rate policy will have some interesting effects on national/state/local/corporate debt payments.
- eli_gottlieb 11y ago
  >Force policymakers to make real changes that boost global growth, not simply lazy monetary policy. The basic problem is that every major economy is simultaneously trying to restart its growth through exports. We're in a currency war.
  - marktangotango 11y ago
    This is the key insight in my opinion. What are the possible outcomes of this scenario? Hyper inflation? War?
    - eli_gottlieb 11y ago
      Well, we've been stuck in this situation for a while. I'd say the consequences have been: persistently low inflation because the new money never gets into people's wallets, and lots of capital-asset valuation bubbles. Ultimately, actual inflation would be a good thing, by helping households deleverage. Instead, the asset bubbles are likely to cause more household debt, and around we will go until another crash. I honestly think there will be open revolution in at least some countries (well, Greece is already in such a state!) due to the radical detachment of the capital markets, and the political class held captive to those capital markets, from the household sector.
  - 11y ago
fchollet 11y ago
The DJIA is essentially useless [1]. We should look at the SP500 instead, or the Nasdaq, or... anything that's at least somewhat representative of the state of the US stockmarket. [1] http://www.fool.com/investing/general/2014/04/18/why-the-dow-jones-industrial-average-is-useless.aspx http://www.fool.com/investing/general/2014/04/18/why-the-dow...
- kyledrake 11y ago
  Here's the Nasdaq chart, '73 to Feb 2015: http://i.imgur.com/gyyQtae.png http://i.imgur.com/gyyQtae.png
- kolbe 11y ago
  This is something that people like to spew, but the DJIA has two nice properties that make it worth referencing sometimes. (1) Its correlation with the S&P 500 is insanely high. So, just using it as a proxy for the S&P is fine. (2) We've tracked the DJIA going back over a hundred years, so that data is readily available. Overall, the S&P 500 is a better index, but criticizing someone for using it in their analysis isn't worth the distraction from their actual thesis.
- Spooky23 11y ago
  Have you looked at the S&P 500 chart for the time period in question?
- whybroke 11y ago
  The S&P 500 and Nasdaq have the same shape.
hueving 11y ago
Chart reading is stupid. You could cut that chart off before any of the tech bubble starts and you would be able to say the same thing over and over about the market being in an 'exceptional period'. 1990 - reaching all-time highs, 'exceptional period' 1991 - reaching all-time highs, 'exceptional period' 1992 - reaching all-time highs, 'exceptional period' 1993 - reaching all-time highs, 'exceptional period' 1994 - reaching all-time highs, 'exceptional period' 1995 - reaching all-time highs, 'exceptional period' >I think there's just too much money sloshing around right now. Why? Are you the tastemaker in how much money supply there should be? We have inflation numbers to help dictate that. If inflation isn't above its target, then there isn't too much supply.
- mayukh 11y ago
  I don't know why you're getting downvoted (I upvoted you). You make a good point. Valuations are both subjective (your view) and relative (where else can I put my money). This 'boom' could end tomorrow or go on for years to an end. Being early on a market call is the same as being wrong..which is why speaking about frothy valuations is one thing, putting money to work based on those presumptions of frothiness is playing with fire.
- aNoob7000 11y ago
  If the U.S. stock market is really fairly valued then moving rates up wouldn't be such an issue. Yet, the Federal Reserve can't talk about moving rates up a quarter point six months in the future without the market taking a dive. Why the anxiety??
  - wahsd 11y ago
    Because everyone's freebasing and edging profits thinking they can get out quickly enough right before they loose consciousness.
- bduerst 11y ago
  Exactly. Trying to predict a "bubble burst" using line charts alone is analogous to scrying with tea leaves. With the housing bubble, it was very clear that the traditionally correlated mortgage and rental prices had separated, signalling that mortgages were in a bubble. Pointing a chart and saying it's high doesn't prove anything. You need to show signals other than the federal reserve moderating inflation (which is normal).
Pxtl 11y ago
Fit an exponential curve to that DJIA graph and I think it's hard to say if we're up or down.
- adaml_623 11y ago
  Plot it with a logarithmic y axis. Doesn't look as bad, does it?
rhino369 11y ago
I'd probably look at the S&P Price/Earnings Ratio. You can't just go by price because what if the US economy really is growing faster or slower? The stock market should reflect that, and it shouldn't be growing at some constant rate. P/E ratios are a bit high compared to average, but not crazily so.
- solomatov 11y ago
  P/E highly depends on an interest rate. If interest rates are low, higher P/E are justifiable.
arenaninja 11y ago
I'm no economist, but I agree with this. One, the real estate market is once again through the roof while homeownership is at the lowest it's been in decades. Seems to me that wealthy people, domestic and foreign, are parking their money in real estate assets, and banks refuse to go through with the foreclosures they've been holding onto since around '09 Next is oil. It's possible that the full brunt of the collapse in oil prices hasn't been felt, but most oil companies were profitable to the tunes of billions of dollars, again. Profit margins were only off about 30% from last quarter, and the predicted merger/acquisition apocalypse analysts were predicting hasn't materialized, while oil prices are on their way to recovery, even though the dollar is ridiculously strong against other currencies at the moment Hiring has pulled back, wages are stagnated, consumer spending is down, but the stock market is at record highs. Honestly, for the most part I wish the government had let it crash

EliRivers 11y ago

Chart one, DJIA, adjusted for inflation: http://home.earthlink.net/~intelligentbear/dj-lt-infl.gif http://home.earthlink.net/~intelligentbear/dj-lt-infl.gif When you take inflation into account, it doesn't look nearly so interesting.

MarkPNeyer 11y ago
it actually looks like things are getting _more_ stable.
Pxtl 11y ago
Much better. Also logarithmic, which was another failing of the above graph. With a line of best fit! Yes, if the market is overinflated, it's because growth itself has failed to happen.
Retric 11y ago
A Lograthmic chart is much better, but when you add in dividend reinvestment and inflation adjustment you get a vary different chart.
dpierce9 11y ago
^This. If you don't take into account inflation and don't plot on a log scale, you can't make any sense of a long term stock or bond price chart. It really doesn't make any sense (though it would be nice if this chart were also a broader index).
solomatov 11y ago
DIJA chart doesn't include reinvested dividends.

cylinder 11y ago

We need to get back to normal interest rates asap. The whole situation has become absurd, every single asset class is ridiculous. Force policymakers to make real changes that boost global growth, not simply lazy monetary policy. When the wealthy stop getting so rich by frothy asset prices, they'll clamor for it too. In this case I'm not too worried about public equities, it seems to be everything else right now.

VLM 11y ago
That interest rate policy will have some interesting effects on national/state/local/corporate debt payments.
eli_gottlieb 11y ago
>Force policymakers to make real changes that boost global growth, not simply lazy monetary policy. The basic problem is that every major economy is simultaneously trying to restart its growth through exports. We're in a currency war.
- marktangotango 11y ago
  This is the key insight in my opinion. What are the possible outcomes of this scenario? Hyper inflation? War?
  - eli_gottlieb 11y ago
    Well, we've been stuck in this situation for a while. I'd say the consequences have been: persistently low inflation because the new money never gets into people's wallets, and lots of capital-asset valuation bubbles. Ultimately, actual inflation would be a good thing, by helping households deleverage. Instead, the asset bubbles are likely to cause more household debt, and around we will go until another crash. I honestly think there will be open revolution in at least some countries (well, Greece is already in such a state!) due to the radical detachment of the capital markets, and the political class held captive to those capital markets, from the household sector.
- 11y ago

fchollet 11y ago

The DJIA is essentially useless [1]. We should look at the SP500 instead, or the Nasdaq, or... anything that's at least somewhat representative of the state of the US stockmarket. [1] http://www.fool.com/investing/general/2014/04/18/why-the-dow-jones-industrial-average-is-useless.aspx http://www.fool.com/investing/general/2014/04/18/why-the-dow...

kyledrake 11y ago
Here's the Nasdaq chart, '73 to Feb 2015: http://i.imgur.com/gyyQtae.png http://i.imgur.com/gyyQtae.png
kolbe 11y ago
This is something that people like to spew, but the DJIA has two nice properties that make it worth referencing sometimes. (1) Its correlation with the S&P 500 is insanely high. So, just using it as a proxy for the S&P is fine. (2) We've tracked the DJIA going back over a hundred years, so that data is readily available. Overall, the S&P 500 is a better index, but criticizing someone for using it in their analysis isn't worth the distraction from their actual thesis.
Spooky23 11y ago
Have you looked at the S&P 500 chart for the time period in question?
whybroke 11y ago
The S&P 500 and Nasdaq have the same shape.

hueving 11y ago

Chart reading is stupid. You could cut that chart off before any of the tech bubble starts and you would be able to say the same thing over and over about the market being in an 'exceptional period'. 1990 - reaching all-time highs, 'exceptional period' 1991 - reaching all-time highs, 'exceptional period' 1992 - reaching all-time highs, 'exceptional period' 1993 - reaching all-time highs, 'exceptional period' 1994 - reaching all-time highs, 'exceptional period' 1995 - reaching all-time highs, 'exceptional period' >I think there's just too much money sloshing around right now. Why? Are you the tastemaker in how much money supply there should be? We have inflation numbers to help dictate that. If inflation isn't above its target, then there isn't too much supply.

mayukh 11y ago
I don't know why you're getting downvoted (I upvoted you). You make a good point. Valuations are both subjective (your view) and relative (where else can I put my money). This 'boom' could end tomorrow or go on for years to an end. Being early on a market call is the same as being wrong..which is why speaking about frothy valuations is one thing, putting money to work based on those presumptions of frothiness is playing with fire.
aNoob7000 11y ago
If the U.S. stock market is really fairly valued then moving rates up wouldn't be such an issue. Yet, the Federal Reserve can't talk about moving rates up a quarter point six months in the future without the market taking a dive. Why the anxiety??
- wahsd 11y ago
  Because everyone's freebasing and edging profits thinking they can get out quickly enough right before they loose consciousness.
bduerst 11y ago
Exactly. Trying to predict a "bubble burst" using line charts alone is analogous to scrying with tea leaves. With the housing bubble, it was very clear that the traditionally correlated mortgage and rental prices had separated, signalling that mortgages were in a bubble. Pointing a chart and saying it's high doesn't prove anything. You need to show signals other than the federal reserve moderating inflation (which is normal).

Pxtl 11y ago

Fit an exponential curve to that DJIA graph and I think it's hard to say if we're up or down.

adaml_623 11y ago
Plot it with a logarithmic y axis. Doesn't look as bad, does it?

rhino369 11y ago

I'd probably look at the S&P Price/Earnings Ratio. You can't just go by price because what if the US economy really is growing faster or slower? The stock market should reflect that, and it shouldn't be growing at some constant rate. P/E ratios are a bit high compared to average, but not crazily so.

solomatov 11y ago
P/E highly depends on an interest rate. If interest rates are low, higher P/E are justifiable.

arenaninja 11y ago

I'm no economist, but I agree with this. One, the real estate market is once again through the roof while homeownership is at the lowest it's been in decades. Seems to me that wealthy people, domestic and foreign, are parking their money in real estate assets, and banks refuse to go through with the foreclosures they've been holding onto since around '09 Next is oil. It's possible that the full brunt of the collapse in oil prices hasn't been felt, but most oil companies were profitable to the tunes of billions of dollars, again. Profit margins were only off about 30% from last quarter, and the predicted merger/acquisition apocalypse analysts were predicting hasn't materialized, while oil prices are on their way to recovery, even though the dollar is ridiculously strong against other currencies at the moment Hiring has pulled back, wages are stagnated, consumer spending is down, but the stock market is at record highs. Honestly, for the most part I wish the government had let it crash