Stock market is a "fully-fledged epic bubble" and will burst

[Jon39]

Burwood said:

Jon39 said:

Mr Whippy said:

... And doesn’t this feel similar to an 80s Japan moment?
Or 1920s having just played out over the last decade? Wealth gap widened and a crescendo of asset bubbles?

Let’s see. I think we’ll be seeing some sad faces in week beginning 20th June.

My gut is Fed will suddenly go dovish and the world will go more pseudo UBI, around 2020 low prices.
Then I’ll buy back in.

Your gut guidance might be of help to me.
21.2% up YTD; Total annual dividends have increased 2.5% YTD.
I cannot see what will happen next though. What should I do now?

Shell isn't it? 20 years in Shell. So including the +21%(1 year) gain you would be -50%. Plus a few dividends would be net zero? Do I have that about right, Jon?

Well spotted Burwood. I wondered whether anyone might be interested in why buy and hold can perform well.
I have never known such a good 5 month start to any year before. A complete fluke, but that is one benefit of staying in the market. Guessing eliminated.

We all know why the oil sector is up (YTD: Shell +46.7%; BP +30.3%), but that has also coincided with a rerating of the tobacco sector (BAT +29.9%; Imperial +11.2%), and last week HSBC, unexpectedly came alive up 8.5%, moving up to position number 4 (YTD +18.7%).

None of that could ever have been predicted for the January to May period.
100 Index = +2.72%.
All-Share . = -0.42%.

Another piece of good fortune, is that the losers so far this year (there will always be some), are mostly the smaller holdings.

It hasn't been 20 years for me in Shell. That holding arrived without me doing anything, when Shell acquired BG Group in 2016.
There was luck involved with that too. After announcing the proposed acquisition almost a year earlier, world oil and gas prices fell dramatically. I therefore expected Shell to lower the terms of their offer, but no, they remained with their original deal to completion, which by then was very generous.

Quite satisfying when a do nothing portfolio continues to perform well, but whether the story will still be good at the year end, no one knows.

Best of luck with your own investing, Burwood. Remember long-term and stay calm during crashes. They can be good times to increase your holdings in solid businesses, at much lower prices.

Mr Whippy said:

I can’t be sure but weren’t you in oil and energy for those long-term sustainable gains? YTD. Such an indicative timeframe
Have you taken profits yet? Or just assuming oil will go up forever over the decades?

What happened to the end of cycle oil and energy commodity spikes through 2007-2009?
That might give you some clues? Afterall I’m just reacting to what’s going on and what happened before.

Please let us know if you rotate out and where to, or if you just ride it all down to the bottom.

I hope you appreciate that both greed and fear can lead you to make valid decisions, but the underlying movement will be the aggregate of all participants emotions.

You don’t need special insight or skill to make or lose money or understand what’s going on.

You just need to make a non-emotional choice at the time when the stress to make a choice based on your inherent greed/fear biases is at its highest and likely to bias your judgement.

Good luck.

Thank you Mr. Whippy.

Please excuse my cheeky question. It is just that I have learnt never to believe in anyones forecast, because markets and economics always seem to be so unpredictable. My strategy is simply based on many annual market beating performances over 34 years (including many stock market crashes) by making almost no changes to holdings. Rather like that old saying in the car world, if it works leave it alone. Perhaps one needs a certain temperament to resist tinkering. Need some luck in the early days though, to select some good businesses.

Of course as you say, there will always be ups and downs for every holding, but with this strategy only the overall portfolio percentage performance js important each year. Which holdings happen to be at the top or bottom of the league table does not matter, if the overall figure looks good, Obviously cannot do well every year, but just have to accept that. If there are not more winning than losing years, then that indicates the holdings need a rethink. Fortunately in 34 years, that has never happened. Luck does play a part in all this.

Had I panic sold every time there was a scare, I would probably have anticipated 6 major stock market crashes, for every 1 which actually happened, consequently missing out. Some holdings in essential products/services businesses can be a helpful cushion during crashes. The market has never beaten me during any year, when there has been a market downturn. Obviously our figures are helped with downward wins, just as much as upward ones.

I don't plan to put any more money in from now on, but the temptation if some really low prices appear, might be too much to resist.
Never forget the dividend aspect. Reinvestment is better in theory, but some business grow without needing fresh capital, so for them returning excess cash to shareholders makes sense. Overall dividend income seems to have increased much faster that pay rises, pension rises and long-term inflation. A dip occurred in the dividend total during the pandemic of course (only about 15% for me), but some businesses were able to continue dividend increases. The total dividends figure is climbing again now, but not yet reached a new peak.

Good luck to you.

Edited by Jon39 on Sunday 29th May 11:23

[Burwood]

As long as you're still smiling, Jon

[Mr Whippy]

Derek Chevalier said:

Mr Whippy said:

To simplify this to the argument that logically positioning to the Federal Reserve’s stance means you should be making a fortune is daft.

There are thousands and thousands of market participants with more information, knowledge, data and ability than the vast majority of people on here (myself included). What have they missed that means the market hasn't already priced in future events and the chance that they might happen?

I keep hearing about this “priced in” stuff, yet the markets keep completely missing a huge correction every 10 years or so.

The vast majority of participants clearly have no clue on value or risk, and so react at the time to new information or emotions.

I’ve said again and again, and I don’t have to be an MBA super brainy economist to say it… IF markets were as insightful as you say, then indexes would be smooth flowing 1000 day average curves.

The fact we get dot coms and housing crashes is because markets *cant* price in for toffee!

[bitchstewie]

So what's your buy in criteria and what happens if it doesn't materialise?

[Derek Chevalier]

Mr Whippy said:

I keep hearing about this “priced in” stuff, yet the markets keep completely missing a huge correction every 10 years or so.

As I said, the trick is in being able to reliably exploit these bubbles. If you can, you are onto a winner (probably among the top 0.001% of investors).

Mr Whippy said:

The vast majority of participants clearly have no clue on value or risk, and so react at the time to new information or emotions.

I'm not sure how you draw this conclusion.

Mr Whippy said:

I’ve said again and again, and I don’t have to be an MBA super brainy economist to say it… IF markets were as insightful as you say, then indexes would be smooth flowing 1000 day average curves.

But as we've already discussed, the markets are constantly reacting to new information. How do you turn off the information tap?

Mr Whippy said:

The fact we get dot coms and housing crashes is because markets *cant* price in for toffee!

This is an interesting read.

http://economics-files.pomona.edu/garysmith/Econ15...


I'm just reading this

https://www.amazon.co.uk/Investing-Amid-Low-Expect...

One key point:

"I will emphasise the long-term benefits of humility, especially when market timing. Short term market timing is hard but even ten-year return forecasts involve wide uncertainty bands. The limits of our knowledge reflect the competitive nature of investing in relatively efficient markets and thus limited return predictability"

IMO, there is a correlation between market experience and humbleness and humility -i.e., the more you know the more you realise you don't know.

Another example of that

"Having studied finance for a long time (Ph.D., professor, books, articles, etc.), I think I now know less about how the stock market works."

https://alphaarchitect.com/2017/02/factor-models-a...

[Phooey]

bhstewie said:

Remember they both have fund versions to avoid premium/discount issues but CGT has a proper discount control mechanism.

With RICA the premium can sometimes run away a little so YTD for example the premium accounts for quite a bit of the gain as presumably people are stting bricks so will pay a premium for the shares.

Ruffer make use of options and financial voodoo instruments whilst CGT don't.

Ruffer have a reasonable allocation to gold whilst CGT doesn't.

Both have churned out a steady 6.5% or there about over most time periods and if you ignore passive v active Jonathan Ruffer and Peter Spiller have been around the block.

Long term either would have made you rich but most importantly neither would have made you poor via those crippling drawdowns some funds endue.

Ok, interesting points - thanks BS.

Out of interest which flavour of RICA do you hold and which platform do you hold it on? Thanks

[NowWatchThisDrive]

Derek Chevalier said:

IMO, there is a correlation between market experience and humbleness and humility -i.e., the more you know the more you realise you don't know.

Another example of that

"Having studied finance for a long time (Ph.D., professor, books, articles, etc.), I think I now know less about how the stock market works."

https://alphaarchitect.com/2017/02/factor-models-a...

Indeed - throughout the time I've been active in markets personally and professionally, one thing I've witnessed quite consistently is a tendency among participants of all levels of experience - from novices right through to distinguished economists and money managers - to overestimate their understanding of the macro picture and, crucially, their ability to predict its future state.

As for the extent to which markets can be said to price stuff in, can be a bit of a nebulous topic but FWIW I think it's a more relevant and observable concept at the micro (individual company) level than macro, due to asset pricing in aggregate being more a function of available liquidity than anything else.

[bitchstewie]

Phooey said:

Ok, interesting points - thanks BS.

Out of interest which flavour of RICA do you hold and which platform do you hold it on? Thanks

RICA is the ticker for the investment trust which has the potential of premium/discount concerns, the two funds are Total Return International which only deals weekly, and Diversified Return which deals daily.

They all follow the same strategy but there are subtle differences.

With all of the funds you also have different unit classes with different fees and on many platforms funds can cost more to hold than shares.

I hold all mine on a platform that doesn't charge a platform fee for holding shares.

Depending on the amount and frequency of buying or selling it can be anything from really simple to stupidly complicated.

[birdcage]

Cash v shares also should factor in dividend.

Rio Tinto is 10% dividend so IF the shares also went up 10% PA compound thats beats Warren Buffet over the same period

Clearly this isn't an investment strategy in and of itself but as part of a diversified portfolio it makes some sense

I'm long on tech right now, 'moat' companies with plenty cashflow and profit and they are getting a kicking

The shares that seem to be working are Maccy D and Coca Cola, which was a blessing with my rebalancing as my tech was falling off a cliff and most likely still will until we find some equilibrium

Everything moving in lockstep with each other over a long period of time is unusual so when the dancing stops the good ones will still be standing but right now they all look wobbly

[Phooey]

bhstewie said:

RICA is the ticker for the investment trust which has the potential of premium/discount concerns, the two funds are Total Return International which only deals weekly, and Diversified Return which deals daily.

They all follow the same strategy but there are subtle differences.

With all of the funds you also have different unit classes with different fees and on many platforms funds can cost more to hold than shares.

I hold all mine on a platform that doesn't charge a platform fee for holding shares.

Depending on the amount and frequency of buying or selling it can be anything from really simple to stupidly complicated.

Ah ok, thanks.

[DaveA8]

Last week I posted that a rise in Interest rates whilst appropriate was unlikely as the cost of servicing government debt would be crippling.
I read an article by a former BOE economist in the Telegraph, it outlines the convoluted route that QE took, if one was cynical, they might think the powers that be wanted to hid the extent and risks.
Higher interest rates , 3pc rise = a £170bn black hole.

Imagine US debt ( it's reckoned to be 15 times ours) and add in Europe. Interest rates are held down not to help mortgage payers but to stop the system imploding, add in that buyers will want a risk premium and that adds more cost in,
Due to the structure of these purchases, any falls in the value mean the Treasury are contractually obliged to cover those losses, in effect, bailout out the BOE

[Mr Whippy]

NowWatchThisDrive said:

Derek Chevalier said:

IMO, there is a correlation between market experience and humbleness and humility -i.e., the more you know the more you realise you don't know.

Another example of that

"Having studied finance for a long time (Ph.D., professor, books, articles, etc.), I think I now know less about how the stock market works."

https://alphaarchitect.com/2017/02/factor-models-a...

Indeed - throughout the time I've been active in markets personally and professionally, one thing I've witnessed quite consistently is a tendency among participants of all levels of experience - from novices right through to distinguished economists and money managers - to overestimate their understanding of the macro picture and, crucially, their ability to predict its future state.

As for the extent to which markets can be said to price stuff in, can be a bit of a nebulous topic but FWIW I think it's a more relevant and observable concept at the micro (individual company) level than macro, due to asset pricing in aggregate being more a function of available liquidity than anything else.

To be fair, the layman investor will just look at the charts going up and want a part of that action, as over that same period, "safe" yields have gone negative.

They've had 14 years of watching the Federal Reserve make charts go up when 'things look bad', and so the demand for these assets increases and their values increase further.

Now fomo reigns supreme, people dare not be out of markets because they'll go up.
People dare not be out of markets because cash will lose them money (against inflation).
People dare not imagine the Federal Reserve and other central banks might actually throw asset markets under the bus after 14 years of jumping in to save asset markets.


What is a true value any more, and is it even relevant? Chart goes up. When it doesn't, Fed steps in and makes it go up again. All you need to know is that you want to be in the steepest curved things.

Is anything priced in, except perpetual Federal Reserve support?

[Mr Whippy]

bhstewie said:

So what's your buy in criteria and what happens if it doesn't materialise?

I've already stated what my feelings are, but I'll go over them again so you can hopefully make sense of my position.


The Federal Reserve and CBs used about bailouts and record stimulus in 2008/2009.

Their QE and stimulus was an economic multiplier. It stimulated the economy.
It has since become an economic cost, with GDP gains not covering the cost of the stimulus.
It would appear that the underlying economy now relies on these stimulus at a net cost to the economy.

The Federal Reserve's 2018/19 move to normalising interest rates impacted the stock markets around the world, and the subsequent rate cuts caused a quick rally and correction in the USA at least. This reinforces the last point above.
However it felt in late 2019 that even this stimulus was now failing to drive the economy hard enough to drive sustained growth.

It feels to me that the Federal Reserve's Federal Fund Rate is essentially a stock market lever now, and the stimulus is what drives today's stock market valuations.


Who would see risk, when the Federal Reserve will cover the risk with more stimulus? Only a fool would position as if markets will correct.

On Wednesday the Federal Reserve will stop renewing bonds and treasuries an increasing amount.
In 16 days they'll raise the Federal Fund Rate by 0.5pc.

This is a historic rate of moving towards tightening.



It seems logical to say that I'll buy in when the Federal Reserve moves to a dovish stance.

I'm more than happy to be in cash temporarily to test my hypothesis.

[loafer123]

Mr Whippy said:

I've already stated what my feelings are, but I'll go over them again so you can hopefully make sense of my position.


The Federal Reserve and CBs used about bailouts and record stimulus in 2008/2009.

Their QE and stimulus was an economic multiplier. It stimulated the economy.
It has since become an economic cost, with GDP gains not covering the cost of the stimulus.
It would appear that the underlying economy now relies on these stimulus at a net cost to the economy.

The Federal Reserve's 2018/19 move to normalising interest rates impacted the stock markets around the world, and the subsequent rate cuts caused a quick rally and correction in the USA at least. This reinforces the last point above.
However it felt in late 2019 that even this stimulus was now failing to drive the economy hard enough to drive sustained growth.

It feels to me that the Federal Reserve's Federal Fund Rate is essentially a stock market lever now, and the stimulus is what drives today's stock market valuations.


Who would see risk, when the Federal Reserve will cover the risk with more stimulus? Only a fool would position as if markets will correct.

On Wednesday the Federal Reserve will stop renewing bonds and treasuries an increasing amount.
In 16 days they'll raise the Federal Fund Rate by 0.5pc.

This is a historic rate of moving towards tightening.



It seems logical to say that I'll buy in when the Federal Reserve moves to a dovish stance.

I'm more than happy to be in cash temporarily to test my hypothesis.

My point above is that the market is already deducing that the Fed will tighten less than originally anticipated...they don't wait for the Fed to decide, they come to their own conclusion.

If you wait for the Fed to decide you will always miss the market.

[bitchstewie]

But what's the number?

What does dovish actually mean?

[NowWatchThisDrive]

Mr Whippy said:

To be fair, the layman investor will just look at the charts going up and want a part of that action, as over that same period, "safe" yields have gone negative.

They've had 14 years of watching the Federal Reserve make charts go up when 'things look bad', and so the demand for these assets increases and their values increase further.

Now fomo reigns supreme, people dare not be out of markets because they'll go up.
People dare not be out of markets because cash will lose them money (against inflation).
People dare not imagine the Federal Reserve and other central banks might actually throw asset markets under the bus after 14 years of jumping in to save asset markets.


What is a true value any more, and is it even relevant? Chart goes up. When it doesn't, Fed steps in and makes it go up again. All you need to know is that you want to be in the steepest curved things.

Is anything priced in, except perpetual Federal Reserve support?

Not sure what the nub of your point is but I fear it's wasted on me! I try to understand the macro context and range of reasonably probable outcomes as they relate to the long-term prospects of the companies I own and follow. But ultimately I've no interest in playing macro strategist and making economic predictions to hang my hat on, as I've seen enough people spend more time and effort doing so than I ever could, and still get it wrong. Not saying that no one can do it, but it's not where I see myself having an edge.

[Mr Whippy]

loafer123 said:

Mr Whippy said:

I've already stated what my feelings are, but I'll go over them again so you can hopefully make sense of my position.


The Federal Reserve and CBs used about bailouts and record stimulus in 2008/2009.

Their QE and stimulus was an economic multiplier. It stimulated the economy.
It has since become an economic cost, with GDP gains not covering the cost of the stimulus.
It would appear that the underlying economy now relies on these stimulus at a net cost to the economy.

The Federal Reserve's 2018/19 move to normalising interest rates impacted the stock markets around the world, and the subsequent rate cuts caused a quick rally and correction in the USA at least. This reinforces the last point above.
However it felt in late 2019 that even this stimulus was now failing to drive the economy hard enough to drive sustained growth.

It feels to me that the Federal Reserve's Federal Fund Rate is essentially a stock market lever now, and the stimulus is what drives today's stock market valuations.


Who would see risk, when the Federal Reserve will cover the risk with more stimulus? Only a fool would position as if markets will correct.

On Wednesday the Federal Reserve will stop renewing bonds and treasuries an increasing amount.
In 16 days they'll raise the Federal Fund Rate by 0.5pc.

This is a historic rate of moving towards tightening.



It seems logical to say that I'll buy in when the Federal Reserve moves to a dovish stance.

I'm more than happy to be in cash temporarily to test my hypothesis.

My point above is that the market is already deducing that the Fed will tighten less than originally anticipated...they don't wait for the Fed to decide, they come to their own conclusion.

If you wait for the Fed to decide you will always miss the market.

"The market" walks off the cliff every ten years or so.

It can't anticipate for toffee.

The market is only as smart as the net barometer of it's bearish and bullish sentiment.

[loafer123]

Mr Whippy said:

"The market" walks off the cliff every ten years or so.

It can't anticipate for toffee.

The market is only as smart as the net barometer of it's bearish and bullish sentiment.

All true, but if the highly educated and analytical market can't predict it, what makes you think you can?!

[Phooey]

https://www.youtube.com/watch?v=SwEv1ROQuy4

[Mr Whippy]

loafer123 said:

Mr Whippy said:

"The market" walks off the cliff every ten years or so.

It can't anticipate for toffee.

The market is only as smart as the net barometer of it's bearish and bullish sentiment.

All true, but if the highly educated and analytical market can't predict it, what makes you think you can?!

Because the market isn't highly educated and analytical. It's the sum of it's participants, and is ultimately forced by the underlying economy, whose participants are global.


Being highly educated and analytical lets you say things about your position, or associate probabilities/risks to what might happen. That's all great if you want that data or do it professionally.


And let's be really clear. This system is dynamic. By measuring it and making statements about it, we change it. This thread will be impacting the outcome of the future.
We had this banged into us again and again post 2008. The economy is fine, it's just about being positive. Positive sentiment, spend, invest, get the economy going again. We need to just pretend it's all ok and it will be. Yes, fine.

And that is the same today. BUT, people have less money, poor people are poorer. Richer people are stupidly rich. People have more to lose at both ends. There is no cushion for stimulus. We're in debt up to the eyeballs and government are already raising taxes to pay for it.

How can people not be fearful about their economic future when they're faced with this clear reality?


The natural reaction of participants facing where we've ended up isn't to just go out spending money they don't have, and QE can no longer provide (inflation), and government can no longer borrow to give them to spend, and which inflation and other stuff is eating up, and which taxes are eating up, and higher interest rates on their mortage is eating up...



But please don't listen to me. Position accordingly. Maybe if we all go rose tinted glasses and think about how an entire generation won't be able to buy houses and have families, then everything will just somehow work out fine. Afterall we've got Boris on the job!