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Look at this chart:Intellectually, we know a bear is coming, but I don’t think people understand it emotionally. And people have gotten used to what Jason Zweig of the Wall Street Journal called “Teddy Bears.” These bears recovered very quickly.
Here's Zweig's article referenced in this one: https://wsj.com/articles/what-happens-when-stocks-only-go-up-11619794810Intellectually, we understand recency bias, and most of us know a bear can be fiercer and hang around much longer. Zweig noted U.S. bears have lasted nearly 20 years. And just recently, the Japanese stock market recovered from its 1989 high—that’s 30 years! If you think that can’t happen here, I suggest you rethink your position—and I’d do it sooner rather than later.
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(And ... teddys include 2.5y and 1.5y dips?)
What would cause a protracted bear market? Fundamentals (overvalued) aside, if the market fell as he scarily suggests is possible but without giving reasons, the buying eventually (pretty soon) would be astonishing in its quickness, as quick as or quicker than the selling.
Q: Who here would use a financial advisor who told you with a straight face:
"... just recently, the Japanese stock market recovered from its 1989 high—that’s 30 years! If you think that can’t happen here, I suggest you rethink your position—and I’d do it sooner rather than later"
"Try to imagine what would happen if stocks lost 70% and stayed down for years. It might mean things like:
You cannot afford to send your kids and grandkids to college. In fact, you need to take back those college 529 accounts you set up for them.
You must sell that vacation house even though the market is quite depressed.
You must either sell your home or take out a reverse mortgage to have cash to live on.
You must figure out how to cut your monthly expenditures in half even though you say only 20% is discretionary. Maybe one of the kids will let you live with them?
Embrace the pain you would feel. Even if you didn’t need to cut things out, I’m pretty certain that you’d feel a lot of regret if you were heavily in stocks and lost more than half of your net worth."
" ... protect your financial independence from a bear market that doesn’t resemble the last three. "
... "I’m afraid of grizzly bears—they are fierce!"
Booga and boo!
Worthless. Is there a point? A plan? Ah: bond ETFs? Got it. Yeah, that'll work.
Maybe he just meant to say Don't use levered equity ETFs. That person he met in the lede made him lose his mind. I sure hope he did not get paid any folding money for writing this.
I suspect that premonitions of these nightmarish, but exceedingly rare, events may explain why otherwise rational people buy 30-year T-Bonds paying under 2% at a time when equity and commodity indexes are going nuts. How else to explain it?
From Zweig's piece:
At least until you get to the '50% fall' and 'important question' parts.
I did not say anything about Zweig.
The article is stupid because of what it says:
Try to imagine what would happen if stocks lost 70% and stayed down for years.
What useful or actionable comes from such imagining? To anyone?
And what would have been the conditions for such? Asteroid? Worse plague?
I’m pretty certain that you’d feel a lot of regret ...
I do recognize that anxiety-churning is a major motive for journalism and especially financial journalism. But Roth is juvenile even by today's standards of mega-fret-mongering.
From that point it generated a maximum cumulative loss of ~80% until October 2002.
I'm not aware of any major plagues or asteroid crashes during this period.
All that was needed for this to occur was a bit of irrational exuberance!
The Nasdaq did not climb back above 5,000 until March 2015.
Yes, that was a bad 2.5y. And then a loong haul, sure. Good thing I was in the diversified TWEIX instead (Fundalarm recommendation, iirc).
Anyway, what is your takeaway from Roth? Avoid tech now? Does that seem wise?
What nonfear, meaning usable, strategic-action point do you read he is making? He says he is an FA, ffs.
>> The I-bond thread already points to an interesting avenue for saving. Options funds if you can find the right one are interesting. Are Treasuries worth it, REITs, high quality value stocks with strong balance sheets? Gold bullion? Cash? Paying down your mortgage or refinancing it?
Again, LB's own broad thoughts give more to chew than Roth's "good article" megaphone.
Nicely put. Thanks for the detailed analysis @LewisBraham
I try to read as much of the popular financial press as I can - by no means a comprehensive amount. But what often surfaces in these analyses is: (1) Central banks (notably the Fed) do not want to tank the markets. (2) They do, however, want to curb speculation. Unfortunately, there’s emerged over the years a certain amount of conflict there. When they do attempt to tighten (slow speculation) the equity markets become turbulent and fall or threaten to fall. “Taper tantrum” is the phrase often used. (3) This conflict leads (it seems invariably) to stage #3 in which the central banks / Fed “cave” to the markets and loosen the reins again. Repeat the process. Market players understand the game.
So now after years (decades?) of monetary stimulus we sit at near 0 short term rates with the Fed still buying bonds (albeit at a reduced rate) and talking obliquely about needing to further stimulate until “full employment” is reached. (Have you tried having your home roofed or painted lately?) Meanwhile, the markets march merrily along, The question left unanswered is - What further can the Fed and central banks do to keep the magic market money wheel churning next time the economy and / or stock market begins to shudder? What happens to those elevated asset prices when the stimulus runs out and people begin to realize the tank is empty?
One pundit I follow expects that coming inflation will force the bond market to take control - irregardless of Fed policy. In other words, faced with growing losses of purchasing power bond investors will sell en mass, forcing rates higher and eventually toppling stocks. I don’t necessarily siubscribe to this view, But think it’s one (of many) worth considering.
Enjoy your weekend
Article - Ladies Home Journal (1929)
“Mere saving is closely akin to the socialist policy of dividing and likewise runs up against the same objection that there is not enough around to save. The savings that count cannot be static. They must be going into the production of wealth. They may go in as debt and the managers of the wealth-making enterprises take all the profit over and above the interest paid. That has been the course recommended for saving and for the reasons that have been set out-the fallacy of conservative investment which is not conservative at all. The way to wealth is to get into the profit end of wealth production in this country.”
And this - “How Can We Tell if the Market is Overvalued?”
Article by Brad McMillan (2021)
“So, is the market crazy expensive? (For the record, this is how my son would put this question.) As I mentioned above, we have three ways to get to the answer. Based on history, the answer is yes. Based on current interest rates, the market looks reasonably priced—not cheap, but certainly within a reasonable range. Finally, based on market behavior, we can see rational pricing. As I see it, history does not seem to be the best guide to our answer, especially given the multidecade trend of rising valuations. On balance, the right answer seems to be that the market is reasonably priced.”
While the 1930s are probably not a useful comparison, as the Fed was nowhere to be seen, many of us lived through the 2000 to 2013 crash. While there was a "recovery" to a previous high by 5/29/2007, within five months things went south again, and did not recover until 2013.
Taking the two periods together, it was over 13 years of no returns. The PE fell from 35 to 8.
While the Fed is obviously more willing to intervene now, with rates at near zero, and the deficit enormous, there may be less they can do.
Example: In 05/2012 (article)
Question:You have become famous for your cyclically adjusted 10-year price/earnings ratio. What do the latest numbers say about future stock market returns?
Shiller: we found a correlation between that ratio and the next 10 years' return.
If you plug in today's P/E of about 22, it would be predicting something like an annualized 4% return after inflation.
FD: reality, the SP500 made 15+% average anually since that date and much better than countries with lower PE10.
I would love if markets collapse because I would be out. I have been doing it for years and why my biggest loss from any top since 2018 was less than 1%. I made money every week in March of 2020.
How do I know? VIX is one of my indicators, the rest is in a lock box.
The key is to be mostly invested. I'm in the market at 99+%(never cash) at 90+% of the time.
Commodities have had a nice run, and so has just about every other asset class. Cash could be king if MMKT rates weren't zero and inflation wasn't raging. I don't see where to hide. So far, the Fed has kept the bubbles afloat.
Some sort of long/short or market neutral Mutual Fund sounds good in theory, but they often offer questionable returns. Options funds are interesting, and a few might be worth a look.
Also like the idea of PRPFX and possibly some REMIX. But I'm sure there are better ideas out there.
Yeah, Old-Joe, his amazing after-the-fact (sic) Buy/Sell record.
His constant dead horse beatings about ALL predictions and ALL experts ALWAYS being grossly incorrect juxtaposed against his claims that his analysis is ALWAYS correct is mind-numbing. NOBODY on the planet except him it appears can accurately predict the future, and he does it EVERY TIME!!!
The absolutely hysterical thing about it all is every time he makes a dime, real or alleged, "Average Joe Investor" (sic) makes about fifteen to twenty cents.
Interestingly enough he has of late started to reference his secret sauce (the part of his can't miss bond OEF momo trading strategy) as "proprietary" and "under lockdown." I wonder if he's aware of all of the various forums that he posts on rules on stuff like that and those of any other AHJs.
Queue the personal insults and lies about me that have NOTHING of course to do with this but serve as his go-to retort.