Re: Stock scream room
Posted: Fri Nov 08, 2024 9:11 pm
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.
ochotona wrote: ↑Fri Nov 08, 2024 8:40 am 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.