Quote: (01-11-2019 10:03 PM)Kid Twist Wrote:
I don't think anyone doubts that the asset bubble is common, has been in the making for years, and will burst. But the larger issue is that multiple bubbles are occurring all at the same time AND (perhaps most importantly, and not addresssed in your two links) the state of the global economy, with central banks and equities markets that are BOTH worse than the United States, level out the playing field in two ways: capital flight into the USA, as it is the only place to go, and confidence as a result of the intertwined currency problems that the USA is now creating, by being super strong and further weakening global banking by definition.
What will all of this do? Create a bigger bubble, and longer drawn out cycle. That's what I am seeing and why I think MA's explanation has been best. When precisely this hits, of course no one knows --- but you don't need to know precisely. You need to see the signs to take advantage of the rising bubble, but get exit points and strategy that suit your risk level to not be holding on the crash, obviously. My guess has been that the beginning of confidence loss in pension and debt issues in the USA, coupled with leadership not by Donald Trump, or subversion of him, is when it'll start. The pension crises start 2020 slowly moving up, and I still think DT gets 2021-24, so that's why my prediction remains ~2025, plus or minus a year.
2025 is a LONG time for a bull market to last (50% longer than the longest bull market run), and I don't know if Central Banks can keep printing that long without creating hyperinflation. The amount of debt that keeps accumulating trying to keep this economy running on fumes is getting more and more absurd.
Anyway, why would the US be a better place to put your money? A good chunk of the foreign stock markets are in bear markets, meaning that they are not as overvalued as the US stock market, so when the downturn comes they won't suffer as much, and have higher upside once things reset. There are also many other countries with far lower Debt/GDP ratios than the US, so are at a lower risk of inflating away government debt.
Even this post-Christmas rally has been the result of continuous QE money printing from the ECB and BOJ. The ECB was supposed to stop printing as of the end of 2018, but looks like they've kept the charade up a bit longer. China also just released a ton of money into the system to keep things propped up prior to Chinese New Year. Unfortunately, the Central Banks are loathe to actually clearly let us know what they will do until the last minute, though the Fed is the best at hiding their intentions.
Recessions and major market corrections are necessary and healthy to clear out bad debt and inefficient businesses. Workers who aren't producing need to get laid off and shift into different industries or more efficient businesses. This constant printing just delays the inevitable - Central Banks will eventually have to decide between hyperinflation and a massive crash. It also screws over savers and retirees that need returns on nonvolatile assets that can at least outpace inflation.
Here are the choices:
A) Cash: Safe short term bet with decent 2-2.5% return on treasuries and CDs. If the Fed keeps up QT and doesn't lower rates, then you will at least keep up with inflation as long as the Fed doesn't change policy. If the Fed starts printing or bailing out without sufficient notice (inflation will kick in long before banks offer higher rates), then you could lose to inflation but there should be some advance warning and they are not likely to reverse without a major stock market reversal. The main concern is lost opportunity cost if there is no recession and the asset bubble keeps growing (though whether it can grow past recent highs is debatable). In the long term, ff the recession hits, debt skyrockets, and foreigners stop buying T-bills, then we face our long overdue debt crisis then all bets are off and the dollar becomes worthless, but that's still way off and there will be ample warning. May lose some value to inflation in a protracted trade war even if Fed doesn't capitulate.
B) Stocks: Slightly to ridiculously overpriced depending on which metric you use. Some potential gains if the economy doesn't hit recession and the printing can keep this bubble longer. HUGE downside risk if the money printing stops and asset deflation kicks in. Moderate risk of mediocre or negative real returns if stagflation kicks in. Some short term upside if China trade gets resolved or no more bad news from Europe.
C) Precious metals: No actual returns, have to rely on capital appreciation alone. Gold is relatively underpriced and silver is quite cheap, so likely not much downside risk. Good inflation and stagflation hedge, will probably perform well in a protracted trade war. May lose some value if the printing stops and deflation sets in (people will sell gold to cover margin), but will skyrocket afterwards once the stimulus starts back up again. Lots of conspiracy theories out there that very little actual gold is backing up the paper market, so if serious inflation sets in, you may end up just holding worthless paper. Taking possession of physical gold is a hassle and isn't liquid. Youtube gloom and doom preppers are pushing gold hard, of course through their broker of choice.
D) Real Estate: Somewhat or extremely overpriced depending on the market. Highly illiquid, so if there is a serious crisis then you are stuck with the property, and if the neighborhood you buy in sees unhelpful demographic changes then you are also in trouble. Several locations are seeing real estate prices drop (Seattle, Canada, Australia) while others are seeing a deceleration. Takes a few years for the market to hit bottom. In case of market, will retain value slightly better than stocks.
E) Bonds: Not so sure - better returns than treasuries, but more downside risk since prices will go down if interest rates increase or inflation sets in.
F) Foreign assets: Euro/Yen/RMB assets are all propped up by QE right now so are also subject to the whims of their respective Central Banks. Japan is a strange case with low inflation, falling housing prices and stagnating stock market despite crazy printing, and the Euro area is ripe for another debt crisis, or hyperinflation if the ECB monetizes the debt and keeps printing. China's stock market is in a bear market but their real estate and shadow banking is still ripe for a major downturn, and for now their Central Bank is loosening monetary policy as well so may be able to keep the bubble a bit more - if those bubbles burst, stocks will probably see more downside. If trade gets resolved, Chinese stocks will see huge upside. There are other countries out there that have more fiscal/monetary discipline and lower geopolitical risk - they may be better bets but I need to do more research to figure out where they are and if the respective ETFs are well managed. Many foreign stock indexes are in a bear market, so potentially, more upside and less downside in case recession hits in. However, if the dollar strengthens in the short term due to a recession flight to safety, countries and foreign corporations with dollar denominated debt will be doubly screwed.
Unfortunately, the Central Banks are loathe to actually clearly let us know what they will do in advance. They only publish their balance sheet positions after the fact. The ECB was supposed to stop printing as of the end of 2018, but looks like they've kept the charade up a bit longer.
Can't time the market? That's bs for the average Joe that doesn't realize the degree to which Central Bank printing has kept this market propped up - he's told to put his money in an index fund and forget about volatility while those that know what the Central Banks are up to can plan ahead in advance of the retail investors.