So far long-term bond markets don't seem to be disturbed very much by these policies, but gold markets seem to be more. Which to me is an indication that markets think its a tail risk but not a significant baseline risk. The significant risk is countries becoming more like Japan. But all of that can change very quickly, particularly if a big central bank leads the way into inflation
Global Macro Trading Journal
- Thread starter Daal
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https://www.zerohedge.com/markets/shiller-ecy-justification-sky-high-stock-prices
To me, TINA is a very flawled thesis. What it misses is that lower interest rates are usually (especially in present times) the result of falling inflation and real growth expectations. So lower earnings growth is the likely net result, which does not justify paying higher and higher multiples in the stocks that are generating these earnings. Investors are ignoring that and the net result is record overvaluations
To me, TINA is a very flawled thesis. What it misses is that lower interest rates are usually (especially in present times) the result of falling inflation and real growth expectations. So lower earnings growth is the likely net result, which does not justify paying higher and higher multiples in the stocks that are generating these earnings. Investors are ignoring that and the net result is record overvaluations
To me that most worrying indicator is the Aggregate Price to 2021 Earnings Estimate. Depiste all the criticisms of analysts, I have found no difference in predictive power (measured as the returns within 5-10 years) between the CAPE, Trailing Earnings or the Forward Earnings. But the forward PE is the most dynamic and makes the most sense to me (stocks are forward looking, so are earnings estimates)
Meanwhile the CAPE is an almost complete joke. It just doesnt make any sense to analyze forward looking markets that have potential exponential payoffs by looking at an average of 10 year earnings. That's a sure fire way to miss an earnings boom that looks 'overvalued' for years.
CAPE is like driving a car with the rear view mirror
I say almost, because there MIGHT be value on it if you use to try to determine when a market is just too cheap. In that case historical 10 year earnings MIGHT be a decent way to figure out the earnings power of a market. But even that has its flaws as the 2 times I used for that purpose I got burned.
One time was in URA (Uranium ETF), the ETF did nothing for years and as the earnings never returned. The other time was in GREK, which also didn't do much as the earnings also never returned (in this case I actually lost money). So the historical reference for 10 year earnings proved to be useless as there was a significant fundamental change, analyts tend to see these obvious permanent earnings destructions. Heck I bet a lot of companies in the greek CAPE were already bankrupt even though their earnings was still part of the calculation. Shiller is a true academic for inventing such a ridiculous metric
I'm pretty sure I would have learned a lot more by reading some analysts reports of expected earnings in URA and GREK than by looking at CAPE. That was my lesson
curious at what point you exited.
I had 5k to burn in 2010 and sitting around a camp fire a friend of mine said man take 1000 and buy bitcoin.
of course i did not but if i had when it hit 30 or even 10 bucks i would have been out treating it like a stock not a new digital age technology.
nice video
I had 5k to burn in 2010 and sitting around a camp fire a friend of mine said man take 1000 and buy bitcoin.
of course i did not but if i had when it hit 30 or even 10 bucks i would have been out treating it like a stock not a new digital age technology.
nice video
Reading over the last several posts, the common theme which emerges is "buy because momentum and money printing". Whether in tech stocks, TSLA, or BTC etc, The reason so many people underestimated this cycle is because coordinated monetary inflation has been much more massive, and gone on far longer than in the past, without any real reset of values back to historical baselines.
There's nothing inherently wrong with this - in fact, as a trader the only reasonable action is to jump on board. But I think it's dangerous to build these alternative narratives about what's going on. I can absolutely guarantee that folks like Cathy Wood, or the myriad crypto freaks will miss the boat completely when the cycle turns (if it ever turns!) and ride it all the way down, because at the end of the day they bought into their own BS. Just ask the dotcom investors who took an 83% drawdown and then another decade to get back to even (at best), or gold bugs who sat through the 1980-2002 bear market and then again from 2011-19, missing gargantuan stock runups both times.
I think this is pretty much spot on. The other critical point which is barely remarked on and IMO greatly under-estimated, is how full-on ZIRP in the USA is de-stabilizing global financial flows. We had low rates before, but the average 5yr yield between the GFC and Corona was something close to 2% - now under 40bps. I think this is a major shock to global investor psychology, as people are internalizing (rightly or wrongly) that this isn't just a temporary state which will be reversed in a few years by tightening, with rates headed back to 3-4% - they're wondering if the Fed will ever hike again.
IMO this more than anything is behind the stampede into stocks and BTC, among other things. If the market finds reason to question these assumptions about rates, the reaction will probably be much more violent than in late 2018 and central banks could very easily (almost overnight) become caught between letting a shock revaluation play out, or racing to support markets yet again with inflation already booming.
Sure, there is the chance its all a mirage. But there is the chance that the tech is real. Dotcom investors got burned but 'true believers' in FB have not, they made a fortune instead. The key to me is to have a position that never gets sold (unless BTC rips 300% in a month or something) AND have a position that gets sold when things get heated
Risks are not balanced by maintaining a skeptical attitude and a trader mentality, not in crypto anyway. Risks are balanced by being a trader AND an investor imo
I'm currently studying wheter is possible to 'lock' bitcoin for a specific period of time, to completely prevent selling. Then I would lock 1/3 (investing hold bucket) for 3-5 years and keep 2/3 with a trader mentality.
There might be something in the BTC protocol that allows that, if not, a program written in solidity (ETH language) could enable one to store encrypted BTC keys that can only be displayed after a few years have passed.
That way I'm balanced in my downside risks but also the upside risks
TINA just tells you what's happening, not whether the players are making the right moves. If you are a pension fund manager, then every month you get a bunch of money which you need to invest right away; the choices are stock indices at maybe 4-4.5% (current earnings yield+growth), or cash and bonds at negative real rates. (IMO negative real rates changes the players' psychology a great deal compared to rates which are extremely low, but still positive)
At some point it will clearly not make sense to invest in stock indices - Japan reached this point in 1989 with large caps trading at 50x-100x earnings. However, Japanese players could always invest abroad without totally swamping overseas capital markets. If U.S. capital markets get to the point where real yields (including stock earnings yields) are negative across the board, the consequences are totally unpredictable but should involve lots of fireworks.