Stock scream room

[I Shrugged]

You have put a lot more thought into this than I have, but I agree with your conclusion. It’s not a bubble, but it has been a one way trade for too long. There is a lot of stupid money bidding up the prices of big ticket items, and a lot of debt. It’s time.

I just can't help but think that stocks (and real estate) are going to have a "moment".

I remember on this board pre-2022 we discussed when TLT was going to have it's moment... and indeed, it came. Similarly with gold, when was it going to have its (good) moment... and it came, and still it's moving.

The post-election surge just seems over the top to me, given the valuation metrics. AllocateSmartly has a freemium offer for a real-time (updates overnight) US stock market valuation and 10-year forecasting tool... if you create an account, you get access to it, then of course you will get marketing emails, so choose your junk email account I suppose.

The forecasting tool isn't just doomer porn, it weights models that forecast +9% CAGR over the next decade to -11% CAGR. The weighted average return is now... 1.8% CAGR. The 60/40 is 2.8%. The long term average fit of the forecast to the 10-year lagged real result is... fairly good, in my view. What worries me is that the black line is surging upwards and diverging from the orange line even more since the blog post on 8/14/2023... at some point, someday, it's going to move sharply downward and "catch down "and re-connect with the forecast, and that catching-down is going to a bear market and/or just a sideways choppy market for a long time.

I think the straws that will break the camel's back is still going to be 10-year US Treasury yields and continuing inflation. The Treasury issuance required in the future is immense, and 10-year rates are now reflecting that. If they get above 5%, investors are really going to take a harder look at stocks vs bonds. Buy the bond dip, sell the stock rip. I know many of you voted for the guy who is proposing more tariffs, but I cannot how see those won't be inflationary, and if trading partners throw up retaliatory tariffs then we're in a 1930s style trade war which can't end well. Also sending home migrants, either the asylees or the straight-out undocumented ones, will have a complex effect on inflation - I'm not sure if directionally up or down, but this is what I see - an effect on real estate.

As you know, construction crews are really heavily Latino. Send some of them home, and the cost of construction and renovation goes up. Mortgages follow the 10-year Treasury, not the short end of the yield curve, so mortgages are going up... not to 3%. I think residential real estate, like stocks, is going to have a "moment" too (commercial RE has been having a terrible time since lockdowns). Oh yes, send migrants home, residential RE demands in incrementally lower, rents come down. But think about residential RE investors:

Constuction / renovation costs up... cost of money up... demand down (migrants go home, and continuing general inflation and associated suck). Investors are going to look at their RE portfolios, and they are going to look a 5%+ risk-free on the US 10-year if they hold to maturity, that takes $500,000 to $638,141 (nominal) and they're going to say, "you know what? I'm done". Their illusion about what they think their property is worth is going to continue to get messed up. These things take years. RE peaked mid-2022. Could be a few more years. These things take 5-6 years to correct.

I don't see any levers that ameliorate inflation and high 10-year rates, other than an old-fashioned recession and temporary disinflation. I think we're goingto see the Everything Bubble start to deflate. I have no idea about timing. I have no prediction talent. I just think about directionality.


Disclosure - I'm a paying member of AllocateSmartly for Tactical Asset Allocation, other than that, I have no connection to them, though the guy who runs it, Walter, is very helpful and I like him.

[dualstow]

I’m very interested in seeing whether those tariffs really materialize.

[barrett]

I’m very interested in seeing whether those tariffs really materialize.

Right, and ditto for the mass deportations.

[yankees60]

I’m very interested in seeing whether those tariffs really materialize.

Right, and ditto for the mass deportations.

We shall see if it will be "Promises Made, Promises Kept."

I'm certain somewhere has a record of what percent of those made for the first term were kept?

[dualstow]

Can we even put the tariffs on the Promise list, though? More like a Threat list, as the president-elect has openly said he doesn’t necessarily intend to follow through on those. Although he probably has also said he will on other occasions. Hard to know which parts to take seriously.

[yankees60]

Can we even put the tariffs on the Promise list, though? More like a Threat list, as the president-elect has openly said he doesn’t necessarily intend to follow through on those. Although he probably has also said he will on other occasions. Hard to know which parts to take seriously.

Somewhat falls into the admonition of "you are not supposed to believe what he says."?

I was trying to find an article that referred to that. Was not able to. But did find this which explained on a psychological basis why his supporters believe all his lies.

https://www.msn.com/en-us/news/opinion/ ... r-AA1pshXx

[Xan]

Best summary I've found of the situation:

His detractors take him literally but not seriously, and his supporters take him seriously but not literally.

[glennds]

Maybe it is like investing in a company based on the leader, despite unclear fundamentals.
The detractor will point to the lack of fundamentals. The supporter points to their faith in the leader.
For an early investor who believed in Steve Jobs, it was a good bet.
For an early investor who believed in Elizabeth Holmes, not so much.

My, how quiet it has been around here compared to last election cycle!

[flyingpylon]

The election was not simply about Trump. The result will never make sense to anyone that continues to frame it that way.

[glennds]

The election was not simply about Trump. The result will never make sense to anyone that continues to frame it that way.

Care to share your analysis?

[I Shrugged]

The election was not simply about Trump. The result will never make sense to anyone that continues to frame it that way.

Care to share your analysis?

Almost any half decent R candidate would have won. Harris was arguably the worst presidential candidate in modern times. And most of what she represented was unpopular with mainstream America. It was a slam dunk. Her biggest selling point was that she would keep Trump out. Without that, she might have lost even bigger.