Will US markets be more expensive than what they have been historically, forever?

[Daal]

US investors have such an advantage over other folks around the world because:
-They got financial books teaching all kinds of investment strategies like CAPE based investing, value investing, indexation, diversification, global asset allocation etc
-They got financial tools like ETFs (plus global ETFs), a wealth of different mutual funds with different focuses and investment advisors that automatically rebalance and allocate funds in certain strategies (like certain diversified asset allocation strategies)
-A huge amount of liquidity in assets and ETFs. Plus futures markets with yet more liquidity
-Liquid options markets
-A large amount of capital being controlled by well informed individuals
-A huge amount of information and statistics from financial markets, prices, valuations, etc
-All kinds of financial studies and backtests on how markets work

Now with all of this, wouldn't be rational for one to think that such market deserves a higher valuation on a long-term basis? I recall some books talking about how valuations moves in cycles and one day we will all see use stocks trading at 7-8 times earnings like in the 70's. The factors above make me seriously doubt that. Sure, there will be some cyclicality in terms of valuations but I dont think they will ever get as low as they have gotten in the past.

Its just so easy to decrease certain risks, diversify, leverage up (to juice returns) that I pretty much can't see US assets suffering a collapse in their valuations in a permanent basis. In a crisis like 2008, sure, but that gets corrected quite quickly.

You can pretty much bet that the whole world will buy US assets like there is no tomorrow (with leverage and diversification) if they went on sale. Smart US investors would do the same. There will be a 'perma' bid if anything ever happened to the valuation.

As a result, I think they will trade higher than what they have historically

Some things that could change is if there is a US fiscal crisis as a result of entitlements. Or if the Fed loses independence and starts to print. But otherwise, things will be more expensive than they have been as there is no reason why they wouldn't. Everybody knows its a buy when they are down a lot, as a result, it never lasts very much. There are some risks but its not hard to diversify away (or hedge) those risks and most smart folks know how to do it

 

[Tim Smith]

US investors have such an advantage over other folks around the world because:
-They got financial books teaching all kinds of investment strategies like CAPE based investing, value investing, indexation, diversification, global asset allocation etc
-They got financial tools like ETFs (plus global ETFs), a wealth of different mutual funds with different focuses and investment advisors that automatically rebalance and allocate funds in certain strategies (like certain diversified asset allocation strategies)
-A huge amount of liquidity in assets and ETFs. Plus futures markets with yet more liquidity
-Liquid options markets
-A large amount of capital being controlled by well informed individuals
-A huge amount of information and statistics from financial markets, prices, valuations, etc
-All kinds of financial studies and backtests on how markets work

With all due respect. I apologise for the tone, but it is hard to word otherwise given what you've just posted above !

You are currently very much making yourself appear as the stereotypical "Yank who knows nothing about the world outside US borders".

What century is your mind living in ? 16th ? Have they written the US constitution yet ?

Absolutley everything you describe is and has always been the case for "other folks around the world" too !!!

Absolutely nothing you describe is special or unique to yanks.

Again, I apologise for the strong words, but its been quite some time since I've read such rubbish.

 

[R1234]

CAPE ratio is looking pretty rich right now. And inflation is still relatively low but slowly heading upwards to long term mean of maybe 5%. Both of these point towards gradually decreasing US stock valuations in years to come.

 

[Maverick74]

Daal, US markets have been underperforming for quite some time. I'm not really sure where this theory of yours is coming from. If anything, returns are going down in the US. Valuations are a function of discounting forward cash flows and that valuation is very mean reverting. They fluctuate wildly. I don't understand your theory at all.

 

[xandman]

US investors have such an advantage over other folks around the world because:
-They got financial books teaching all kinds of investment strategies like CAPE based investing, value investing, indexation, diversification, global asset allocation etc
-They got financial tools like ETFs (plus global ETFs), a wealth of different mutual funds with different focuses and investment advisors that automatically rebalance and allocate funds in certain strategies (like certain diversified asset allocation strategies)
-A huge amount of liquidity in assets and ETFs. Plus futures markets with yet more liquidity
-Liquid options markets
-A large amount of capital being controlled by well informed individuals
-A huge amount of information and statistics from financial markets, prices, valuations, etc
-All kinds of financial studies and backtests on how markets work

Now with all of this, wouldn't be rational for one to think that such market deserves a higher valuation on a long-term basis? I recall some books talking about how valuations moves in cycles and one day we will all see use stocks trading at 7-8 times earnings like in the 70's. The factors above make me seriously doubt that. Sure, there will be some cyclicality in terms of valuations but I dont think they will ever get as low as they have gotten in the past.

Its just so easy to decrease certain risks, diversify, leverage up (to juice returns) that I pretty much can't see US assets suffering a collapse in their valuations in a permanent basis. In a crisis like 2008, sure, but that gets corrected quite quickly.

You can pretty much bet that the whole world will buy US assets like there is no tomorrow (with leverage and diversification) if they went on sale. Smart US investors would do the same. There will be a 'perma' bid if anything ever happened to the valuation.

As a result, I think they will trade higher than what they have historically

Some things that could change is if there is a US fiscal crisis as a result of entitlements. Or if the Fed loses independence and starts to print. But otherwise, things will be more expensive than they have been as there is no reason why they wouldn't. Everybody knows its a buy when they are down a lot, as a result, it never lasts very much. There are some risks but its not hard to diversify away (or hedge) those risks and most smart folks know how to do it

Yes. But that market and currency hedgemony which lasted for more than a century for many empires might just be decades for the US.

One thing is certain, it all ties with military dominance and the veritable bag of tricks that a government can employ.

One can wax philosophical how the internet is changing things. But, who invented the internet? With the right clearance, you will probably know that most changes were forseen, if not guided.

 

[vanzandt]

CAPE ratio is looking pretty rich right now. And inflation is still relatively low but slowly heading upwards to long term mean of maybe 5%. Both of these point towards gradually decreasing US stock valuations in years to come.

CAPE is over-rated. It's flaws have something to do with when they changed mark to market. Not Shiller's fault but it is what it is.
It signaled a strong "sell the market" in 2009... the best time ever to by stocks.

 

[zdreg]

With all due respect. I apologise for the tone, but it is hard to word otherwise given what you've just posted above !

You are currently very much making yourself appear as the stereotypical "Yank who knows nothing about the world outside US borders".

What century is your mind living in ? 16th ? Have they written the US constitution yet ?

Absolutley everything you describe is and has always been the case for "other folks around the world" too !!!

Absolutely nothing you describe is special or unique to yanks.

Again, I apologise for the strong words, but its been quite some time since I've read such rubbish.

you are some kind of cowboy. if you knew how to do basic research you would know that Daal is from outside of the US. your post is nonsensical, since it starts from a false premise.l your rubbish comment rebounds to you. i suppose you will come up with one more rubbish apology.

 

[Daal]

Daal, US markets have been underperforming for quite some time. I'm not really sure where this theory of yours is coming from. If anything, returns are going down in the US. Valuations are a function of discounting forward cash flows and that valuation is very mean reverting. They fluctuate wildly. I don't understand your theory at all.

What I'm saying is that how much you pay for an asset is also related to
-How much you know about it
-Its liquidity
-How much risk you are taking
-Whether you can leverage it
-The transaction costs involved with buying and owning the asset

The factors that I mentioned tend to help in that regard a great deal. It might not be the difference between a 10 shiller PE and a 20 shiller PE but there should be SOME effect

100 years ago you had to pick individual stocks (no ETFs), with huge spreads (increasing costs and daily volatility), without a fully developed investment strategy (and the data to give you some confidence to stick with it), limited diversification (in terms of countries and asset classes). Asset management fees in funds were also much bigger, so were brokerage costs

These days you can design portfolios and implement so much more easily and cheaply, you can see how they did historically over bigger samples. And you can leverage them easily as well. So if you ARE comfortable with your strategy, you can buy more per unit of $ avaliable. They are super liquid and you can diversify certain risks away with ETFs and other products. I cant see how this wouldn't impact valuations

Jeremy Siegel makes a similar point in his books

 

[CyJackX]

High liquidity and information would strike me as encouraging a correction more than overvaluation.

Also, given that Trump gives no fucks about bankruptcy in his private enterprise, who knows if the Dollar is safe from default?

 

[zdreg]

short selling restrictions are likely to lead to massive overvaluations