Equities going parabolic - Is the crash near?

[Oystonousted]

14 minutes ago, SilvergunSuperman said:

Re bullion - you really can't go wrong with sovereigns, although I find it a bit dull so added some flavour with other universally-recognised bullion coins like French francs & Aussie nuggets.

The 2009 and 2015 Aussie nugget look quality almost proof like

[Guest]

On 2/22/2017 at 09:58, vand said:

OK, one look at the general stock indices shows me that they have totally taken leave of their senses. All risk has been disregarded and we have going into the blowoff irrational exuberance stage.

I don't know how much longer this will go on, maybe we are very near to the top, but I can guarantee that when it all falls apart a lot of people will lose their shirt and the outcome will be epic.

I totally agree. Here's a chart that I find interesting...waiting to see what the next quarter shows. 

Equities at record highs and Velocity of M2 Money at historic lows = Eventual carnage, wailing and gnashing of teeth. 

 

From the FRED website:

'The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy.
The frequency of currency exchange can be used to determine the velocity of a given component of the money supply, providing some insight into whether consumers and businesses are saving or spending their money. There are several components of the money supply,: M1, M2, and MZM (M3 is no longer tracked by the Federal Reserve); these components are arranged on a spectrum of narrowest to broadest. Consider M1, the narrowest component. M1 is the money supply of currency in circulation (notes and coins, traveler’s checks [non-bank issuers], demand deposits, and checkable deposits). A decreasing velocity of M1 might indicate fewer short- term consumption transactions are taking place. We can think of shorter- term transactions as consumption we might make on an everyday basis.
The broader M2 component includes M1 in addition to saving deposits, certificates of deposit (less than $100,000), and money market deposits for individuals. Comparing the velocities of M1 and M2 provides some insight into how quickly the economy is spending and how quickly it is saving.
MZM (money with zero maturity) is the broadest component and consists of the supply of financial assets redeemable at par on demand: notes and coins in circulation, traveler’s checks (non-bank issuers), demand deposits, other checkable deposits, savings deposits, and all money market funds. The velocity of MZM helps determine how often financial assets are switching hands within the economy.'

https://fred.stlouisfed.org/series/M2V

[sovereignsteve]

Hence why inflation has been stuck at ultra low levels the last number of years. Starting to pick up now though.

[vand]

The money velocity thing is very interesting. It's a big piece in the jigsaw of why inflation is so low despite all the currency creation.

All that we can definitely say is that it can't go to zero, so sooner or later it will rise.

I think Mike Maloney's latest video in Hidden Secrets of Money makes this point very well. At some point the money will come out of hiding abd be spent, and then the SHTF.

[Pipers]

A Gardener does not stand at his garden shed with his fertilizer and just pour it out and expect it to spread around (trickle down) his garden!!!

 

[vand]

Almost Dotcom levels of exuberance.

https://www.bloomberg.com/news/articles/2017-04-20/paul-tudor-jones-says-u-s-stocks-should-terrify-janet-yellen

 

[KDave]

I am out of the stock market entirely now, due to the fact the P/E of most companies are insane, people are just blindly putting money into trackers like its 1929... and I needed the money for a house deposit 

Days after I sold everything, I received an email (trying to sell me a subscription to something) explaining that over the next few years, the stock markets are going to double. If they are right, I can continue to claim to have the worst market timing on the forum. 

The idea is based on the theory that markets work in cycles, which is more convincing from a historical/hindsight view of the markets, and not really that successful recently on the timing side of things. That said, if we believe that the stock market will continue to rise, how does it happen?

Do fundamentals no longer matter to investors? After all the market has been rigged for the past few years by central banks and they have a good track record now of keeping everything under control and running the way they want it to (always higher). Is the sentiment and investor attitude that has developed in this environment enough to push it on for the foreseeable?

Alternatively, currency devaluations could achieve the same effect, but in real terms such stock market advances do not necessarily translate into 'gains' in real terms purchasing power, on the contrary. Perhaps that is what they are getting at? It seems unlikely as movement in currency enough to double the markets would be devastating.

Other than some money to invest and the mindset of a tech bubble investor, what am I missing?

[Bumble]

P/E is only one measure of value. You need to bear in mind the following:

1. A lot of investors just want safe dividends. They can no longer get these from high rated bonds, because bond yields are low and look set to stay low, at least in real terms. But they can get dividends from stocks. Many blue chip stocks pay 3% or more in dividends, and as long as they can maintain these dividends these stocks are not overpriced. We are now in a mad world where conservative investors have been chased out of bonds and into stocks and are buying them for yield.

2. P/E ratios cannot appropriately be compared with historical values, because QE has fundamentally shifted any point of comparison. A whole lot of money is chasing after stocks and bonds that never used to exist.

3. In recent years, many companies have exploited the low interest rates to borrow money for share buy-backs. This has reduced the shares in circulation and pushed up prices.

4. In Japan, the central bank is buying stocks, meaning that prices cannot fall, unless there is a systemic financial collapse. Central banks in the USA, UK or Europe might follow suit, printing money and buying stocks to prop up the market prices. Governments over time show a tendency for increased intervention and interference in economic affairs, so I wouldn't find this development surprising.

5. Stock prices can only fall if many investors take their money out of the stock market; but if they do, where does it go? Bonds are already overpriced. Cash held at bank is asking for trouble: the banks are not that safe. Real estate might be OK if you know where and what to buy, but much of that is overpriced as well. Precious metals should be an attractive option, but so far the market has been ignoring them. So, stocks remain a default option for money that has nowhere better to go.

[KDave]

I think you have nailed it. The market is rigged and price discovery is a thing of the past - aka, its different this time for real. 

The only trouble is CB's buying up stocks can only be achieved by printing/QE, which, so long as it stays in stocks, is fine. Eventually though someone is going to want to spend those gains, there will be tipping point but who knows when, it could indeed take a doubling of the stock market or more before we see any issues! 

[vand]

1 hour ago, Bumble said:

P/E is only one measure of value. You need to bear in mind the following:

1. A lot of investors just want safe dividends. They can no longer get these from high rated bonds, because bond yields are low and look set to stay low, at least in real terms. But they can get dividends from stocks. Many blue chip stocks pay 3% or more in dividends, and as long as they can maintain these dividends these stocks are not overpriced. We are now in a mad world where conservative investors have been chased out of bonds and into stocks and are buying them for yield.

2. P/E ratios cannot appropriately be compared with historical values, because QE has fundamentally shifted any point of comparison. A whole lot of money is chasing after stocks and bonds that never used to exist.

3. In recent years, many companies have exploited the low interest rates to borrow money for share buy-backs. This has reduced the shares in circulation and pushed up prices.

4. In Japan, the central bank is buying stocks, meaning that prices cannot fall, unless there is a systemic financial collapse. Central banks in the USA, UK or Europe might follow suit, printing money and buying stocks to prop up the market prices. Governments over time show a tendency for increased intervention and interference in economic affairs, so I wouldn't find this development surprising.

5. Stock prices can only fall if many investors take their money out of the stock market; but if they do, where does it go? Bonds are already overpriced. Cash held at bank is asking for trouble: the banks are not that safe. Real estate might be OK if you know where and what to buy, but much of that is overpriced as well. Precious metals should be an attractive option, but so far the market has been ignoring them. So, stocks remain a default option for money that has nowhere better to go.

 

So.. "this time it's different?"

[SpacedMarine]

Apparently the swiss central bank is a major shareholder in apple.So the money is backed by something afterall!

[SpacedMarine]

Put it this way if you had a billion dollars where would you put it?Real estate?Well you could put a bit in but a billion?Ok so where do you put the rest?Gold?Ok a bit but where would you keep it?Classic cars?Yeah ok but a billion?!!!The only other alternatives are art,stocks and bonds.Ok art yes,but a billion how many picassos can you take out od the country?Government bonds?A bit risky in my opinion so the only other option is stocks.
Ok for mere mortals a billion is an unfathomable amount but this is how much money hedge funds etc. have to play with.Just think about it.

[SpacedMarine]

The point i'm trying to make is at the moment would you trust say the British government to give your money back in ten years or would you rather have shares of apple?In theory the government should be a safe bet but factor in low interest rates and future inflation and stocks look a lot better.Yes apple could go bust but the government could default or just print off "devalued" pound notes to pay your bond back whereas provided apple doesn't go bust you'd have stock price rise around or above inflation plus a small dividend.

[KDave]

Good points, it is basically as you and bumble say I think, investors are driven to stocks as there are no alternatives. Central banks/governments have turned the stock market into the bond market in terms of risk and reward and they guarantee stocks will keep rising by their actions. Everyone is betting this will continue indefinitely. So it will. The snake will eat its tail forever. The system is certainly different to anything seen before in history and has been chugging along under central bank control for the past 10 years.

FTSE 15,000 here we come 

[SpacedMarine]

Thing is everyones calling for a crash but the only things in the market are robots.Everyone else is out or short and a short is a guaranteed buyer either to take profits or when the market goes up and he has to cover his short to save his ass.I was in the sky is falling market is gonna crash camp myself but there comes a point where you think damn thing is just going up [emoji23][emoji23][emoji23].

[SpacedMarine]

Same with gold,people will realise that the government never pays its debts so what do you do?I think Adam Smith said the best thing to do with money is to spend it before the government makes it worthless or something along those lines.I could be wrong but it sounds good!

[KDave]

Yes officially currency costs us 2% per year to hold. Over long time frames its like paying a 99% capital gains tax without making any gains.

As for the stock market, Just keep buying - It works! 

Until it doesn't. 

[silversky]

57 minutes ago, SpacedMarine said:

Same with gold,people will realise that the government never pays its debts so what do you do?I think Adam Smith said the best thing to do with money is to spend it before the government makes it worthless or something along those lines.I could be wrong but it sounds good!

They certainly get most of it off us regular non elite types which is why it makes sense to enjoy spending it before they do.

You know what I'd do with all the money I've spent on women and booze?

I'd spend it on women and booze... lol  quote from bad grandpa movie which was mostly rubbish but that one made me laugh.

[SpacedMarine]

The shart scene in the restaurant was good as was the long nosed carpet croaker!I think that film made me laugh more than freddie got fingered [emoji23][emoji23][emoji23]

[vand]

TBH the sort of comments I read on this thread that attempt to explain and justify current valuations are exactly the sort of comments that are completely typical of all financial asset bubbles; new paradigm, this time it's different, the Fed has got your back, nowhere else to put your money etc.

[SpacedMarine]

17 hours ago, vand said:

TBH the sort of comments I read on this thread that attempt to explain and justify current valuations are exactly the sort of comments that are completely typical of all financial asset bubbles; new paradigm, this time it's different, the Fed has got your back, nowhere else to put your money etc.

So your saying we're in a bubble?What exactly is in a bubble in your opinion stocks,bonds,houses,gold?Just curious.

[oliversw5]

Im with Vand on this. Ive put my money where my mouth is and pulled everything pretty much. The scary thing is I don't think its a bubble I think its multiple bubbles due to the amount of funny money in the system

[Aaron]

Hey there,

the thing is, nobody inside a bubble can say for sure that it's a bubble. Only works in hindsight. Even if YOU knew that we're inside a bubble, you would have no way of knowing WHEN it's going to burst. You could stand at the sidelines and miss one of the greatest bull markets waiting for the bubble that you personally know there is for sure, to burst. One thing is sure, however. Someday, the market IS going to crash and nobody knows when, how deep and for how long. But that has always been the case and it's just part of what the market (any market) is about. Such market crashes do bring great opportunities for those who have some cash ready to buy great companies or index funds that have fallen with the general market. ;-)

Cheers, Aaron

[oliversw5]

2 minutes ago, Aaron said:

Hey there,

the thing is, nobody inside a bubble can say for sure that it's a bubble. Only works in hindsight. Even if YOU knew that we're inside a bubble, you would have no way of knowing WHEN it's going to burst. You could stand at the sidelines and miss one of the greatest bull markets waiting for the bubble that you personally know there is for sure, to burst. One thing is sure, however. Someday, the market IS going to crash and nobody knows when, how deep and for how long. But that has always been the case and it's just part of what the market (any market) is about. Such market crashes do bring great opportunities for those who have some cash ready to buy great companies or index funds that have fallen with the general market. ;-)

Cheers, Aaron

I dont disagree with that, I will be sitting on the sideline with a war chest of metal to snap up the Bargins. It all goes in cycles.

[vand]

3 hours ago, SpacedMarine said:

So your saying we're in a bubble?What exactly is in a bubble in your opinion stocks,bonds,houses,gold?Just curious.

Everything except the commodities sector imo. Commodities are just coming out of a multi-year bear market. They're still shunned by the majority of investors. 

Bonds: bubble rating 9/10
Stocks: bubble rating 8/10
London housing: bubble rating 9/10
Other UK housing: bubble rating ~7/10
Auto loans - not sure, but it's brewing
Student loans, ditto
Bitcoin, ditto

 

All driven by cheap money and the idea that risk can be discounted because some higher entity has got your back, creating "new paradigm" thinking.

I don't say that none of these markets can't go higher - the nature of bubbles is that they can go higher for longer than anyone thinks possible, but there are no recorded instances of markets that deviate massively from their fundamentals over the long term and do not eventually correct (and usually overcorrect).