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Happy Hoosier

(8,547 posts)
Thu Dec 5, 2024, 09:11 AM Dec 5

The Market has been on an absolute TEAR.... a bubble ready to pop? Or not?

It feels like it cannot last. But I thought it wasn't sustainable a couple weeks ago... but here we are.

I don't want to miss this rally. While trying to see where the top of this is so maybe I can avoid the worst of the tumble, without sacrificing the benefit of the rally too much. I ran across a guy who has the theory of the "melt up."

Essentially, he thinks the bubble will continue to infalte for a few years. Ultimately, he thinks the Fed will had to "manufacture" a crisis to pop the bubble in a controlled way, and there is a big market reset.

Some of the data matches, some don't. Not sure I buy it.

Another possibility is a valuation reset. Lots of folks predict a "bubble pop" because P/E vales are so much higher than in the past. But Scott Galloway thinks that passive index investing might simply be permanently increasing the nominal P/E value. If we look at this chart: https://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-earnings-chart we see a pretty steady rise in the P/E ratio since about 1980. The first Vanguard low-cost index fund was approved in 1976. Coincidence? Maybe. But consider that the modern 401K began in 1981. That starts looking like LESS of a conincidence. I think that low dollar retail investors such as myself investing their 401K dollars are attracted to the low-cost index funds. The more recent acceleration is, IMO, at least in part to 401K's having better investment options, including more access to low cost funds.

Anyway, a long way to say that while I do think the market is likely to pull back from the RECENT rally, I am NOT convinced it is actually in a unsustainable bubble. P/E is not a fundamental perfromance metric, but rather a measure of value to buyers, and these days, buyers value stocks higher than they have in the past.

Thanks for coming to my TED talk!

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JohnSJ

(96,810 posts)
1. When they are pushing bitcoin and removing the independence of the Fed, it is only a matter of time before this house of
Thu Dec 5, 2024, 09:35 AM
Dec 5

cards collapses, and before this is over a lot of people's lives will be destroyed.

Barring a black swan event, it will probably take some time before it happens.

Happy Hoosier

(8,547 posts)
2. Maybe... and I am considering that closely.
Thu Dec 5, 2024, 09:44 AM
Dec 5

I am 8 years of retirement and ACUTELY aware of the sequence of returns risk at the the beginning of return (a few years before and after). A massive crash a couple years before retirement wouldn't be great, but is a real risk/.

Not sure how Bitcoin will affect the market itself. It's still mostly a game of early adopters and late-to-the market hopefuls. I don;t have any money there, so I pretty much ignore it.

I think the market is due for a pull back, but I am NOT convinced a giant collapse is coming. A LOT of modern investors are "just keep buying" types (like me). Even if some large investors bail for a bit, I think bargain hunters will force prices back up over a period of a couple years.

I DO expect a recession. And probably a surge in inflation (depending on how insane Trump gets with tariffs and Government cuts). That could trigger a bear market for a bit. But again, I do think the trend will remain up and to the right.

JohnSJ

(96,810 posts)
3. I used bitcoin as an example of speculation in the market. It was like when they were pushing "windmills". There are
Thu Dec 5, 2024, 10:04 AM
Dec 5

also a good number of commercials pushing gold.

When I see quality companies lagging the market over more speculative companies, to me that smells trouble.

Like I said I don't see it happening quickly though unless something really unexpected happens, and may probably will take place after the sociopath leaves office. That is what happened with the S&L crisis, and the most recent example was the liquidity crash at the end of bush's term, which was a direct result of the deregulation which had been going on since regan, and finallized with Clinton.

If he fully implements his tarriffs it will be inflationary, and should stop consumer buying of non-essentials. A lot will depend on employment which is at record lows.

The only thing I am doing is having a well diversified portfolio with quality companies, bonds, etc. which I have accumulated over the years. The problem is that a lot of people do not have that benefit of time, and are living hand to mouth, and I don't think they are saving very much.



kansasobama

(1,546 posts)
4. Markets will not crash yet
Thu Dec 5, 2024, 10:07 AM
Dec 5

It is on sugar.It will get more sugar for another 1.5 to 2 years. Trump tax cuts , regulation smash, pulling out of climate deals, drill baby drill. Then reality sets. It will be a mess after that. For now, we are okay but be vigilant.

Also markets may be fine up to a point even if country suffers. And then, ultimately country is part of the society we all live in. As prices start soaring, US consumers cannot afford US products, foreign goods will be too pricey, and we will go into a tailspin

Trump will still blame someone, and MAGA and non college educated voters will be fooled.

Happy Hoosier

(8,547 posts)
5. I'm not sure it's sugar.
Thu Dec 5, 2024, 11:32 AM
Dec 5

P/E levels have steadily risen over the decades. There will be excursions and pull backs, but l’m not convinced there are s a fundamental drive for an asset collapse. Could be wrong.

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