OhNoNotimAgain wrote:And they add to the bubble by putting a large percentage into the most expensive stocks as they allocate by cap weighting.
A global market weighted tracker does not add it the bubble. It just leaves the bubble undisturbed.
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OhNoNotimAgain wrote:And they add to the bubble by putting a large percentage into the most expensive stocks as they allocate by cap weighting.
absolutezero wrote:You (and Vanguard) say the US is overvalued and its bubble. The market (people) disagree and they keep buying it. Who is right?
GeoffF100 wrote:OhNoNotimAgain wrote:And they add to the bubble by putting a large percentage into the most expensive stocks as they allocate by cap weighting.
A global market weighted tracker does not add it the bubble. It just leaves the bubble undisturbed.
Lootman wrote:Whether we are in a bubble is not something that can be known at the time, but only in retrospect IF the market comes crashing down.
BT63 wrote:Lootman wrote:Whether we are in a bubble is not something that can be known at the time, but only in retrospect IF the market comes crashing down.
I think we are in an 'everything bubble', pumped up by very low interest rates and QE which have both been allowed to unnecessarily continue for years after the 'emergency' which spawned them has passed.
By historic measures, US shares have usually given poor long term real returns from these kind of valuations.
But this time it's different because central banks have been interfering to such an extent that bonds guarantee negative real returns.
At some point there will be a come down but it could be many years away. However, when it happens it will probably wipe out half a century of real returns.
My data shows that in 1982, after the 1970s stagflation, the value of the US stock market had gained virtually nothing in real terms compared to where it was at the turn of that century.
BullDog wrote:But this time it's different - The most expensive words in investment, probably.
BT63 wrote:BullDog wrote:But this time it's different - The most expensive words in investment, probably.
Well, it is different because central banks have removed the opportunity to earn a real return from bonds whilst flooding the system with never-seen-before quantities of money. US money supply (Fed balance sheet) has more than doubled in the last two years.
Negative real interest rates make even poor quality companies look reasonably attractive, pushing up the valuation of anything that has even the smallest chance of giving a real return.
So here we are today with the US stockmarket at valuations which would normally be considered 'bubble', underpinned only by the lack of return on anything else due to asset purchases/QE pushing bond yields negative and near-zero interest rates.
The Fed is talking tough. They will be stopping the floods of money, to which the S&P500 has a very high correlation. They might even start quantitative tightening (reducing money supply), which, if the correlation with S&P continues, will push the S&P down.
To add to that, bond yields are rising, making bonds a little less unattractive, while the Fed also promises a few interest rate rises, making cash a little less unattractive.
To me, the combination seem like strong headwinds for the US stock markets.
BullDog wrote:It's not easy to disagree. The markets are capable of staying irrational for longer than I can stay solvent, perhaps.
BT63 wrote:I've been flicking through old data.
Since the 2008 financial crisis, pumped up by the Fed's ZIRP and massive QE, the US stock market's runaway bull has outperformed other markets by much more, and for much longer, than any other period in the last 50 years.
So I'm going to suggest that US equities look well placed to soon begin one of their worst periods of underperformance in living memory.
BT63 wrote:I've been flicking through old data.
Since the 2008 financial crisis, pumped up by the Fed's ZIRP and massive QE, the US stock market's runaway bull has outperformed other markets by much more, and for much longer, than any other period in the last 50 years.
So I'm going to suggest that US equities look well placed to soon begin one of their worst periods of underperformance in living memory.
TUK020 wrote:BT63 wrote:I've been flicking through old data.
Since the 2008 financial crisis, pumped up by the Fed's ZIRP and massive QE, the US stock market's runaway bull has outperformed other markets by much more, and for much longer, than any other period in the last 50 years.
So I'm going to suggest that US equities look well placed to soon begin one of their worst periods of underperformance in living memory.
There is a good chance that this is the case.
However, much of that outperformance has been driven by a handful of tech companies that dominate their markets, and are continuing to earn significant profits.
This will only change when some meaningful antitrust action is taken, or some new innovation unseats them. When do you think that will happen?
bluedonkey wrote:I think I don't know the future and simultaneously think that BT63 is right.
simoan wrote:That's great. If you can now just tell us how long that period will be and when it will start
BT63 wrote:simoan wrote:That's great. If you can now just tell us how long that period will be and when it will start
I suspect it will last for several years and will start within a few months if it hasn't already begun. I think the Fed's proposed tightening cycle will trigger it.
simoan wrote:The first lesson of investing is to tell yourself every day that you do not know what the future holds and invest on that basis.
BT63 wrote:simoan wrote:The first lesson of investing is to tell yourself every day that you do not know what the future holds and invest on that basis.
Just looking at the historic probabilities gives a good idea.
The US market is expensive on historic measures and is only supported by never-seen-before levels of monetary stimulus in the form of QE, zero interest rates and the deprivation of returns on other asset classes which has bent the whole system badly out of shape.
This has caused the largest and longest outperformance in at least the last several decades but it is not underpinned by sound economics or fundamentals. Since the financial crisis of 2008, the increase in the S&P 500 has almost entirely matched increases in the Fed's balance sheet via QE.
Didn't they used to say: 'Don't fight the Fed'? The Fed is making strong noises about tightening which will be bad news for the pumped up US stock market and US consumer spending which is highly correlated with it.
Additionally, the US markets' valuations relative to other nations' major indices are 3std dev from the mean relative to the last few decades. Yes, I appreciate the US usually trades at a small valuation premium to the rest of the world of around 10%, but it's now at about 35% premium.
The odds don't look good for the US continuing to outperform.
simoan wrote:Thanks for that. I'll sell everything this PM then
BT63 wrote:simoan wrote:Thanks for that. I'll sell everything this PM then
There are other places to invest.
Just buy a mix of UK, EU, Japanese, Pacific trackers to build your own 'world ex-US' tracker fund. There is no need to have zero exposure to shares.
Also looking at the statistics, it looks like it shouldn't be long before growth investing has a bad run for several years while value investing has a good run (or at least a good run in relative terms).
Further statistics show that value shares are almost as cheap vs growth shares compared to the peak of the dotcom bubble. Value is the second-cheapest it has been in the last several decades.
Boring 'old economy' shares could well give a pleasant surprise, or at least less of a nasty surprise than growth.
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