1999 again?

[RichardGibbons]

FWIW, historically, about 86% or 87% of the time, the market's up over a 5 year period. (I'm also inclined to agree with you that the odds today are likely lower.)

[Broeb22]

A colleague at work said he was starting a Robinhood account. He's probably the dumbest employee we have. His reason for starting an account? Because his friend who owns a Nissan dealership said that the dealership sales team "does their own work" and "one guy" bought $20k of Gamestop and is now a "millionaire". It's pretty frothy, although I think success stories like GME will fuel the euphoria for a while longer as people pick up "easy money" in stocks like GME.

 

[LC]

My wife sends me an email about the Weedmaps SPAC and says "I heard everyone is talking about Gamestop but this could be some small easy big money".

 

Now I am concerned. If she goes and gets WSB on her side I may surrender control of the accounts to her  ;D

[Simba]

A colleague at work said he was starting a Robinhood account. He's probably the dumbest employee we have. His reason for starting an account? Because his friend who owns a Nissan dealership said that the dealership sales team "does their own work" and "one guy" bought $20k of Gamestop and is now a "millionaire". It's pretty frothy, although I think success stories like GME will fuel the euphoria for a while longer as people pick up "easy money" in stocks like GME.

 

I think were just getting started. It's more like the Spring of 1999 or Fall of 1998. Going to be highly amusing.  8)

Will end in tears as it always does, not a matter of if, but just a matter of when.

 

8)

[Jurgis]

IMO there is a potential of large market drop when the rocket-hodl-WSB junk stonks break down.

 

There is a potential that if marginal buyers are all in junk stonks and if these stonks break, there may be no buyers left for the index or general stocks. The buy-the-dip would be replaced by wall-street-f'ckd-us-again-market-is-rigged-sell-sell-sell-and-nvr-come-back.

 

Just one possible scenario. Not saying it has to happen this way.

[alpha]

 

3 years ago I walked into my barbershop and there were 3 customers with their smartphones out discussing their day trading strategies and weed stocks along with one of the barbers, I thought for sure that was the top of the cycle... 3 years later here we are ...  ???

[Jurgis]

 

3 years ago I walked into my barbershop and there were 3 customers with their smartphones out discussing their day trading strategies and weed stocks along with one of the barbers, I thought for sure that was the top of the cycle... 3 years later here we are ...  ???

 

That is also true.  8)

[mattee2264]

 

Yeah I think all this craziness could cause a lot of market participants to want to take some profits and reduce risk. Especially as there is plenty of uncertainty ahead in terms of the virus and the economy and so on. And perhaps with all the margin debt and new money in the market a healthy correction could turn into something much deeper. Other thing that could be interesting is if the same market participants who bet on the market going up decide to bet on the market going down.

[Cigarbutt]

From morningstar:

"By contrast, U.S. equity funds lost $24 billion to outflows in June. While that wasn't as bad as May's

record outflow of $30 billion, it pushed quarterly redemptions to a $72 billion record, surpassing the

previous record of $55 billion set in 2009's first quarter."

Not exactly euphoria.

There's been an unusual amount of noise lately.

 

So, more perspective. Follow the money, they say.

The following confirms (contrary to what some suggest using exactly the same data) that fund flows, per se, have little value for what's coming in terms of overall market prices.

 

To add value to the noise, even if not enough to produce market timing signal, the household equity allocation has been reaching 1999 levels again, and more.

 

Mr. Benjamin Graham, who is not relevant now in this kind of market, used to suggest a 25-75% for exposure to riskier assets vs safer bonds although he had suggested the potential difficulty in reliably adjusting along the way. Anyways, these days, all asset classes go up (stocks, bonds (risk-free or not), pensions, home values etc) and even massive recessions barely cause a dent in net worth:

And, these days, the more leveraged, the most shorted, the better.

 

Of course, everything may be justified. Perhaps not. And yes this too shall pass.

A way to reconnect to fundamentals:

[stahleyp]

Is there a way to see what the pension funds have been doing from an asset allocation perspective?

[Cigarbutt]

Is there a way to see what the pension funds have been doing from an asset allocation perspective?

i assume this is about Mr. Buffett's comments related to the typical reverse contrarian position of pension funds. i'm not sure this means that pension funds are wrong, it may just mean that they may be (depending on your independent thought process).

BTW, if i were managing a typical pension portfolio now, i'd probably quit and go to med school or something. Why?

-Expected returns may not have adjusted to to-be-realized returns (asset side)

-Discount rates may not have adjusted to the massive disinflationary secular decline of the 10-yr yield (liability side)

-Despite very favorable returns along most or all asset classes in the last 10 years, funding ratios remain well below 100%

i guess it's OK if one is OK to depend on the kindness of strangers, federal or not.

 

There are many ways to look at this data. One is to use the Fed Financial Accounts Z.1 (this is almost as captivating as reading CBO documents). Private and public pensions have shown similar patterns over the last decades. Here's a short review (1952-2012), see page 2, figure 1. The figure shows the incremental dollar pattern that Mr. Buffett describes in the 1970s and early 80s.

https://www.pewtrusts.org/~/media/assets/2014/06/state_public_pension_investments_shift_over_past_30_years.pdf

Since 2012, both private and public pensions have shown similar trends with risk assets (public equity, private equity and other alternative investments) going to about 80%.

Within alternative investments, there is a rising share for real estate and infrastructure, as typically shown by Calpers:

https://www.preqin.com/insights/research/blogs/calpers-alternatives-portfolio-shows-growing-real-estate-and-infrastructure-investments

[stahleyp]

Yes, cigar. That's helpful. thanks!

[KFS]

 

Cathie Wood Has Wall Street’s Hottest Hand. Maybe Too Hot.

https://www.wsj.com/articles/cathie-wood-is-wall-streets-hottest-hand-maybe-too-hot-11612544044?mod=djintinvestor_t

 

A few highlights:

• "According to FactSet, 43.5% of ARK’s total equity holdings are in stocks of which the firm owns at least a tenth of all shares outstanding. At Vanguard Group, by contrast, only 9.7% of total equity positions are in such concentrated holdings.
  If ARK ever needs to sell any of those holdings, who will buy in enough bulk to keep prices from collapsing? 
  
• "What might happen if the same investors who flung billions of dollars into ARK’s funds over the past year yank the money back out?
  “Not concerned about it,” says Ms. Wood. “I mean, Tesla a year ago was 10 times smaller than it is today.” (Tesla Inc.’s total market value was $77 billion at year-end 2019; this week, it exceeded $810 billion.) “That’s telling us, reinforcing our sense, that the market is beginning to understand the exponential growth opportunities out there,” which will create ample liquidity over time, she says.
  
•   "At my request, Elisabeth Kashner, director of funds research at FactSet, analyzed the liquidity of ARK’s holdings. She calculates that if investors sold enough shares of ARK Innovation ETF to cause a $1 billion redemption, that would require 14.5% of the recent trading volume of its underlying holdings, on average, to change hands. For Vanguard Total World Stock ETF, by comparison, a $1 billion block sale would involve an average of only 0.6% of total trading volume in that fund’s stocks.
   
  

 

 

 

 

[Spekulatius]

US stimulus vs Europe stimulus:

https://twitter.com/lynaldencontact/status/1360618998975655944?s=21

 

Looks like we are a bit overstimulated. What happens when the drugs wear off?

[TwoCitiesCapital]

US stimulus vs Europe stimulus:

https://twitter.com/lynaldencontact/status/1360618998975655944?s=21

 

Looks like we are a bit overstimulated. What happens when the drugs wear off?

 

Then you rail another line and get back to the club

[mattee2264]

 

Worth remembering that there are quite a lot of leakages. Some is saved or goes into the stock market. Some of it goes towards paying off debt. Some goes on imports. And for now it is mostly life support rather than stimulus. With delays in the vaccine rollouts and mutations and a desire to achieve herd immunity that could remain the case for much of 2021. The real recovery might not be until 2022 and by that time it might be a lot harder to pass these trillion dollar stimulus packages.

[Cigarbutt]

US stimulus vs Europe stimulus:

https://twitter.com/lynaldencontact/status/1360618998975655944?s=21

Looks like we are a bit overstimulated. What happens when the drugs wear off?

Is there a link with 1999 or what made 1999 possible?

 

More 'color':

Opinion #1: we may be reaching the end of the beginning here.

Opinion #2: i thought Canada overdid it; so the US must be an example of a stimulus on steroids.

The phenomenon that TwoCitiesCapital refers to is called habituation in some circles. Mr. Klarman (the comments on reddit and elsewhere, about him and what he represents, are getting nastier every year), in his last letter, refers to the boiling frog syndrome, a typical example used to picture habituation.

[Spekulatius]

I am sure it is nothing, but this chart looks pretty bullish to me for interest rates:

 

I am starting to wonder when we need to adjust our discount rates, especially for growthy stuff. I am not a chartist per say, but found that the 200 DMA is often a reasonable indicators of trend reversals.

[Xerxes]

This was posted before, but best to be posted here.

Druckenmiller comment about this is not 1999 makes it related and no can accuse Druckenmiller of not seeing many cycles as he is more a bear.

 

 

 

[TwoCitiesCapital]

This was posted before, but best to be posted here.

Druckenmiller comment about this is not 1999 makes it related and no can accuse Druckenmiller of not seeing many cycles as he is more a bear.

 

 

I'm beginning to come around to that idea. Might be 1998. The top isn't signaled by retailers who've never show interest in the stock market getting interested. It's the disinterested retailers getting interested and then getting "rich" that marks the top and I'm not sure we've seen that yet.

 

Maybe another 12 months or so? Still conservatively and cautiously positioned, but I'm beginning to think we still have a little ways to go.

[KFS]

https://www.wsj.com/articles/if-tesla-bubble-bursts-catastrophe-wont-follow-11613221203?mod=searchresults_pos2&page=1

 

James Mackintosh:

 

If Tesla Bubble Bursts, Catastrophe Won’t Follow

Not all bubbles are equal. Britain’s bicycle-stock bubble of the 1890s holds lessons for today’s electric-vehicle mania.

[mattee2264]

 

Yeah I think there are a few reasons why this could continue for a few more years:

 

1) Fiscal and monetary policy are going to be supportive for at least the next year or two given the new emphasis on full employment and willingness to let inflation run hot (and there is probably

a limit to how hot it can run in the short term given the size of the output gap and absence of wage pressures and falling rents)

2) The pandemic has reinforced the notion that the Fed won't let markets crash and that will continue to encourage a buy the dips mentality as well as keeping confidence levels high.

3) There are still quite a lot of investors worried about market valuations and speculative activity in the market. "1999 again" isn't the same as "this time it is different". And probably some of the residual health and economic uncertainty is keeping some investors out of the market.

4) Markets don't generally crash when the economy is getting better so if a V shaped recovery plays out (and that seems a lot more likely now with fiscal stimulus and effective vaccines) then rising earnings should support rising stock prices and expensive valuations

5) There is nothing obvious on the horizon that would break investors confidence or lead to increased risk aversion. Perhaps rising interest rates will result in some degree of rotation into bonds and value stocks but if it is gradual that should be a fairly orderly and healthy rebalancing of the market and not result in a market crash.And perhaps mutations will delay reopening but you'd expect investors to look past this and expect more stimulus to soften the blow.

 

 

[Simba]

This market is nuts.

 

One segment of the market people are investing on p/s ratio and TAMs.. it's nuts .. eventually gravity will weigh on the overvalued and make the overvalued fairly valued

 

I still believe (and hope) that in the long run, the market is like a weighing machine--assessing the substance of a company.

[K2SO]

This was posted before, but best to be posted here.

Druckenmiller comment about this is not 1999 makes it related and no can accuse Druckenmiller of not seeing many cycles as he is more a bear.

 

 

I'm beginning to come around to that idea. Might be 1998. The top isn't signaled by retailers who've never show interest in the stock market getting interested. It's the disinterested retailers getting interested and then getting "rich" that marks the top and I'm not sure we've seen that yet.

 

Maybe another 12 months or so? Still conservatively and cautiously positioned, but I'm beginning to think we still have a little ways to go.

 

I think the next wave of stimulus will be the last big up move in this bull market. Once that is done, and vaccines are more widely distributed, we'll start to see inflation and the Fed talking about raising rates to cool down price increases. With less prospect of monetary stimulus and the fiscal bazooka all used up, we will have passed the point of maximum optimism and begin descending the other side of the mountain.

 

[mattee2264]

 

Fed have already said they won't talk about raising rates until we achieve full employment which is going to be pretty near impossible because the entire service sector has been gutted and a lot of those jobs simply aren't coming back. Also their favoured measure of inflation includes rent and wages which are going to be under pressure for some time. And even after the next round of stimulus checks the Democrats still have all the infrastructure and green spending lined up.