Stocks and Bonds: Both Bad Bets?
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Stocks and Bonds: Both Bad Bets?

By freak80 following x   2013 Oct 23, 6:01am 8,094 views   25 comments   watch   sfw   quote     share    


Stocks are overvalued on a long-term basis.

Interest rates are near all-time lows, bonds go down when interest rates rise.

Gold and silver swing wildly, just like any other commodity. Gold and silver are no longer "money."

Where should we invest our money these days?

#investing

1   New Renter   ignore (11)   2013 Oct 23, 6:07am   ↑ like (1)   ↓ dislike (0)     quote      

In Concord CA and Phoenix AZ silly!

2   iwog   ignore (3)   2013 Oct 23, 6:10am   ↑ like (0)   ↓ dislike (0)     quote      

Stocks are undervalued and will be the best place to put money over the next few years.

3   freak80   ignore (4)   2013 Oct 23, 6:53am   ↑ like (0)   ↓ dislike (0)     quote      

iwog says

Stocks are undervalued

How do you figure?

4   iwog   ignore (3)   2013 Oct 23, 7:53am   ↑ like (1)   ↓ dislike (0)     quote      

freak80 says

iwog says

Stocks are undervalued

How do you figure?

We're in a recovery which I expect will continue. In any recovery, profits will continue to increase as jobs and growth return.

The P/E ratios are actually quite low compared to recent standards. Rich people are tired of sitting on their money and should soon capitulate and buy stocks again. There is still far too much 2009 fear in the air and many financial articles are constantly reminding people of it.

There has to be a bubble somewhere and the stock market is next up to bat. Medical stocks will drive it.

5   Heraclitusstudent   ignore (1)   2013 Oct 23, 8:20am   ↑ like (0)   ↓ dislike (0)     quote      

iwog says

There has to be a bubble somewhere and the stock market is next up to bat. Medical stocks will drive it.

I thought you said bubbles are rare.
Now you say there must be one.

6   iwog   ignore (3)   2013 Oct 23, 8:36am   ↑ like (1)   ↓ dislike (0)     quote      

Heraclitusstudent says

I thought you said bubbles are rare.

Now you say there must be one.

They are rare. They take around 5 years to develop and peak, and another 1-2 years to collapse. Given the number of different markets in the world today, and each market having a variety of different sub-sectors, even a rare event is going to happen pretty frequently.

A gold bubble peaked in 1980 and again in 2011. The oil market has only had a single bubble since speculation in oil is relatively new. A stock market bubble peaked in 1929 and again in 2000 primarily driven by internet frenzy.

If I'm right, we'll get another bubble peak around 2018-2020 which will be an entire generation since the last one, and this time it will be driven by medical technology instead of the internet.

I have also said that as wealth disparity continues to increase, bubbles will be more common. Idle money tends to be put into more speculative and risky investments.

Also remember that the context in which I usually discuss the rarity of bubble markets is real estate, and it is usually a discussion where some blowhard is saying "WE'RE BACK IN A BUBBLE!" a mere 6 years after the last peak.

7   freak80   ignore (4)   2013 Oct 23, 8:57am   ↑ like (0)   ↓ dislike (0)     quote      

iwog says

We're in a recovery which I expect will continue. In any recovery, profits will continue to increase as jobs and growth return.

Probably true. But how many of the new jobs will be shit jobs? And like you've been saying, there's a huge problem on the "demand side" of the economy. Most of the "recovery" is for the top 20%? What about everyone else?

iwog says

The P/E ratios are actually quite low compared to recent standards.

Key word: recent. As long as "recent" means post 1995, I agree. But on a long term basis, P/E ratios are very high. If we ignore the tech bubble from 1995 to 2001, P/E ratios look quite high even by recent standards:

http://www.multpl.com/shiller-pe/

That chart uses "trailing ten year" P/E rather than the usual "trailing 12 month" P/E to get rid of the P/E spikes that occur during market crashes. For the normal TTM P/E, see here:

http://www.multpl.com/

If you ignore the P/E spike during the crash of 2008, and ignore the tech bubble, P/E still looks quite high.

iwog says

Rich people are tired of sitting on their money and should soon capitulate and buy stocks again.

You could be right. But how do you know they're not *already in* the market? Do you have actual data?

iwog says

There is still far too much 2009 fear in the air and many financial articles are constantly reminding people of it.

Agree. Stocks seems to be climbing a "wall of worry." I suppose the time to sell is when the guy at McDonald's is giving you stock tips.

iwog says

There has to be a bubble somewhere

You're probably right, IMO. It seems like the American economy has been based on serial-bubbles ever since 1995. Too much cheap money from the Fed, perhaps? When interest rates are low, people desperately chase yield. Gotta put our money on the Next Big Thing!

iwog says

the stock market is next up to bat.

The stock market certainly has the "momentum" right now. And the perception seems to be that more QE = higher stock prices. In economics, perception = reality.

8   Dan8267   ignore (3)   2013 Oct 23, 12:13pm   ↑ like (0)   ↓ dislike (0)     quote      

The S&P500 is over 1700 right now. How is that justified?

10   AverageBear   ignore (2)   2013 Oct 23, 9:38pm   ↑ like (0)   ↓ dislike (0)     quote      

freak80 says

Stocks are overvalued on a long-term basis.

I disagree. Look at the P/Es of WMT, KO, etc back in 1999. Now that was a bubble. Buy any dividend growth blue chip company w/ a P/E below 19-20, and you really can't go wrong. Don't sell these (ever. Really.) unless they stop hiking their dividends, or cut a dividend. Buy on dips. Dividend growth stocks like KO, WMT, PM, PG, AFL, WAG, UTX, and MCD is where you want to be.

11   freak80   ignore (4)   2013 Oct 23, 10:04pm   ↑ like (0)   ↓ dislike (0)     quote      

Dan8267 says

The S&P500 is over 1700 right now. How is that justified?

"The effect of free money is remarkable" -- The Economist

12   bullshitmagnet   ignore (0)   2013 Oct 23, 10:13pm   ↑ like (3)   ↓ dislike (0)     quote      

I have watched the strong correlation between interest rates and stock returns for many years. Initially, while i-rates are rising, the stock market does well. This is because rising interest rates are a sign the economy is in an expansionary period (for example if inflation is sparked, fed will increase i-rates to keep it under control). At some point, short term rates will peak (controlled by fed), and will be higher than long term rates (controlled by the market, at least until recently when the fed has also been controlling those through QE infinity). When that happens (the so called downward sloping treasury yield curve) the stock market will often experience a rapid decline.

I think the bigger question is this: are we entering into a new phase in terms of interest rates? They have, generally been on the decline for something like 30 years. I think this steady decline has been one of the major reasons for the enthusiasm people have had towards stocks, and especially houses. It has been especially advantagous to buy a house with a little or no money down mortgage: a small investment could yield huge returns because of the tremendous leverage (and the gov't promotes this). It's almost like the frenzy to buy stocks on margin before the Great Depression. Unfortunately many people figured out that buying a home with high leverage (i.e. little down payment) has also similar potential for rapid losses.

So, if we are entering into a new era of rising interest rates (which many people think we are, but who knows), will the pendulum of prosperity begin to swing towards savers and away from debtors?

13   freak80   ignore (4)   2013 Oct 23, 11:59pm   ↑ like (0)   ↓ dislike (0)     quote      

bullshitmagnet says

So, if we are entering into a new era of rising interest rates (which many people think we are, but who knows)

It's all up to the Fed. It holds the cards.

No wonder there are so many conspiracy theories.

14   dunnross   ignore (6)   2013 Oct 24, 12:10am   ↑ like (0)   ↓ dislike (1)     quote      

freak80 says

Gold and silver are no longer "money."

1. If gold is not "money", then why are all the central banks buying it? The Chinese bought close to 1000 tons in 2013, alone.

2. If gold was in a bubble, then why do most people I know don't have any? In fact, on average, a US citizen held less than 1 coin, even at the peak of the gold price, back in 2011. Most US citizens can't even name a single gold mining company and don't even know how much an ounce of gold costs. Doesn't sound like a bubble to me.

15   dunnross   ignore (6)   2013 Oct 24, 12:25am   ↑ like (0)   ↓ dislike (1)     quote      

3. Finally, from 1982-2000, the DOW went up 17 times, NASDAQ - 35 times, Gold in 1980 - 25 times. And now, only 6 times. Does that sound like a bubble to you?

4. Silver is almost 3 times cheaper right now than back in 1980. In fact, this, so called bubble in Silver hasn't even topped the previous bubble in 1980. That has never happened to any bubble in history.

5. Gold mining stocks underperformed gold by a big margin. In fact, most of the mid-size gold stocks were trading below $20, even back in 2011. Comparing that to NASDAQ stocks, most of which were trading in triple digits, after multiple splits, back in 2000. Still think gold was in a bubble?

16   freak80   ignore (4)   2013 Oct 24, 12:38am   ↑ like (1)   ↓ dislike (0)     quote      

dunnross says

Doesn't sound like a bubble to me.

It's isn't. Not anymore.

It was until last year. Now gold is crashing.

Sounds like you're taking a bath in the gold market. Ouch. Maybe Iwog will give you a rubber ducky. :-)

17   dunnross   ignore (6)   2013 Oct 24, 12:42am   ↑ like (2)   ↓ dislike (1)     quote      

freak80 says

Sounds like you're taking a bath in the gold market. Ouch. Maybe Iwog will give you a rubber ducky. :-)

I give you solid evidence, and you are countering with personal attacks. Sounds like you've been learning from iwog and roberto.

18   freak80   ignore (4)   2013 Oct 24, 12:58am   ↑ like (1)   ↓ dislike (0)     quote      

dunnross says

I give you solid evidence

Dunnross, buy as much gold as possible. Put it on your credit cards.

19   dunnross   ignore (6)   2013 Oct 24, 1:10am   ↑ like (1)   ↓ dislike (1)     quote      

Here is the graph of the NASDAQ bubble from $130 in 1980 to $1894 in 1997. That's already a bigger rise than anything gold saw in this, so called, bubble. But most of the money was made after 1997 when it went over $5000 in 2000.

20   Quigley   ignore (0)   2013 Oct 24, 1:47am   ↑ like (1)   ↓ dislike (0)     quote      

If you want a predictor of trade, I'd look at the Baltic Dry Index (BDIY), which predicts shipping demand and rates. This fell off extremely sharply during 2009 when you had hundreds of container ships sitting at anchor rusting without cargo. It's been very weak for a while, but has nearly doubled in the past month and a half. Could this be an indicator of increased demand, and thus future corporate strength? Or is it just seasonal, predicated on the Christmas rush of goods across the oceans to America?

21   freak80   ignore (4)   2013 Oct 24, 1:55am   ↑ like (0)   ↓ dislike (0)     quote      

Quigley says

Or is it just seasonal, predicated on the Christmas rush of goods across the oceans to America?

The chart looks pretty random:

http://www.bloomberg.com/quote/BDIY:IND/chart

Not sure I'd use it for predictions.

22   Quigley   ignore (0)   2013 Oct 24, 2:04am   ↑ like (0)   ↓ dislike (0)     quote      

http://en.m.wikipedia.org/wiki/Baltic_Dry_Index

This is why it matters.
The ships are all delivered now, so the shipping capacity should be stagnant. If prices are rising now, it is entirely dependent on increased demand for raw materials. You don't order those and pay to ship them if you're planning to do nothing with them.

23   edvard2   ignore (1)   2013 Oct 24, 2:16am   ↑ like (0)   ↓ dislike (0)     quote      

I've given this little speech on this site for more times than I care to mention. Now.. the following isn't meant to make a prediction, but over the past 100+ years stocks- as in the overall market- has risen in value by an average of 7-10% per year. Keep in mind that this is over a LONG TERM period, as in decades. This shouldn't come as a surprise: There are and have always been fluctuations not just in stocks, but real estate, gold, and everything else that people tend to invest in.

The stock market is tied basically to all of the economic activity that occurs on a daily basis. Whatever you do or buy daily is tied to various companies, industries, and so on. Even if you are one of those who trusts real estate more than stocks, whenever you buy one of those houses you are buying paint, lumber, light bulbs, flooring, and so on ALL from companies whom trade on the open market. As such those companies reflect that activity in their valuation. Since business moves on, so too does the fluctuation in that value.

But the takeaway isn't to try and guess or come up with strange conspiracies. The real thing to keep in mind is what overall trends and performance is gained from whatever investment one makes. As I stated in the intro of this response the stock market has been a fairly reliable, consistent performer.

24   TwoScoopsPlissken   ignore (0)   2013 Oct 24, 7:51am   ↑ like (1)   ↓ dislike (0)     quote      

JCP. Buy Gold with Credit Card.

Coffee gushed out my nose reading this thread.

Non-sequitur:

Computerized trading sure didn't bring a lot of stability to the market. We're seeing more ups and downs than a drunk hooker on a roller coaster.

25   hanera   ignore (0)   2013 Oct 24, 10:40am   ↑ like (0)   ↓ dislike (0)     quote      

bullshitmagnet says

So, if we are entering into a new era of rising interest rates (which many people think we are, but who knows), will the pendulum of prosperity begin to swing towards savers and away from debtors?

Thank you for the balanced perspective. Keep it coming.


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