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The unknowable: Is the U.S. stock market in a long term bubble?

hank
edited June 17 in Other Investing
One article on the question

A late night listen prompted me to consider the possibility. Guest was Whitney Baker (audio linked at end). Among the concerns she noted is the amount of leverage (borrowed money) in the system. I’m playing that game myself on small scale by (1) carrying a recent home upgrade on a (interest-free for 18 months) credit card so the money can stay invested in a Roth as long as possible. And I carry a small 3% mortgage on my home preferring to risk the money in the markets rather than pay off the loan. Suspect I’m not alone here in that thinking. Of course these are minuscule amounts of “leverage” compared to what hedge funds or CEFs engage in.

Alan Greenspan famously said in the 90s that you can’t recognize a bubble until it has burst. He’s been laughed at for the remark. I get it. But he’s not a dumb person. I won’t list them, but several “authorities” believe there is a market bubble (and they have been scorned in recent years). Bill Fleckenstein is one. Fleck cites passive inflows into retirement savings plans along with index investing. Don’t laugh too loud. He’s certainly been right for several years on gold which has more than doubled over only 2 or 3 years. And highly respected James Stack has his investors at 57% invested and 43% in cash or T-bills. That’s very conservative for him.

Of course, you can cite even more “authorities” who insist there is no bubble. Honestly, I’m not making the case either way. But the question is one worth considering. In a real market crash it’s very hard to “log-in” and sell your plummeting investments and virtually impossible to speak to your friendly fund rep. It gets very crazy. We had a small sneak-preview in late March.

I’ve looked up the P/E (one measure of relative value) on M* for some funds of interest. They all seem tame to me - not signifying a bubble. I have no idea how M* calculates these.

PRWCX: 21.91
DODBX: 13.65
LCORX: 14.08
PRFDX: 14.73
OAKBX: 13.04


Link to Meb Faber May 2025 interview with Whitney Baker

Comments

  • mskursh
    the question would be what was their PE during real identified bubble periods...a bit mroe difficult to likely extrapolate.

    I think technology has likely changed the markets and how bubbles are corrected. I obviously am not sure what that will look like, but I imagine things moving faster.
  • davidrmorandavidrmoran
    relatedly:

    https://www.nytimes.com/2025/06/17/business/stock-market-sp-500-record.html
  • Observant1
    edited June 17
    Good NY Times article.
    I don't know if the U.S. stock market is in a long-term bubble but believe it maybe currently overly optimistic.
    The tariff situation is unresolved, ramifications of the Israel-Iran war are unclear,
    and Congress wants to pass legislation which will significantly increase our national debt.
    These issues (along with several others) can impact company earnings, consumer spending, and employment.
    This is all occuring while many equities are high-priced.
    Frankly, I'm anxious regarding short-term stock market performance.
    But I haven't made any major portfolio adjustments since I don't know
    how the stock market will ultimately react to these events.
  • JD_co
    Somewhat off-topic, but there seems to be some selective price gouging going on out there. BoarsHead cold cuts should not be ~$17/Lb, for example. But they are.

    We speak with our wallets, and some of us are either doing without or cutting back. If others follow, at least a few equity sectors will feel it.
  • Old_JoeOld_Joe
    " BoarsHead cold cuts should not be ~$17/Lb, for example."

    Yes, but let's be fair: that price includes a surcharge to cover the costs of settlement with the ten people they killed with listeria.
  • mskursh
    JD_co said:

    Somewhat off-topic, but there seems to be some selective price gouging going on out there. BoarsHead cold cuts should not be ~$17/Lb, for example. But they are.

    We speak with our wallets, and some of us are either doing without or cutting back. If others follow, at least a few equity sectors will feel it.

    Carl Buddig for the win!

  • DrVenture
    edited June 17
    Observant1 said:

    Good NY Times article.
    I don't know if the U.S. stock market is in a long-term bubble but believe it maybe currently overly optimistic.
    The tariff situation is unresolved, ramifications of the Israel-Iran war are unclear,
    and Congress wants to pass legislation which will significantly increase our national debt.
    These issues (along with several others) can impact company earnings, consumer spending, and employment.
    This is all occuring while many equities are high-priced.
    Frankly, I'm anxious regarding short-term stock market performance.
    But I haven't made any major portfolio adjustments since I don't know
    how the stock market will ultimately react to these events.

    This is my opinion as well. And for all the same reasons stated. 6 months of going almost nowhere in the S&P may count for something in terms of playing catch-up, I suppose.

    Trump's ever more obvious willingness to ratchet back tariffs to get this over with, and proclaim himself a master deal-maker, is also something to consider. Leaving the debt-building budget, which people tend to ignore, as a headwind. And the two wars underway, which people are ignoring too.

    As a result, I might put some cash to work for the long term, if we get an enticing pullback. Still, I will remain at a cautious level. My caution, and a few well timed forays, into and out of equities, has me at approximately 4% YTD.

  • davidrmorandavidrmoran
    edited 12:32AM
    oops
  • Old_JoeOld_Joe
    Not sure how to read that. Our mmkt & fixed income is paying between 4 and 5% per annum. DrVenture is saying that he's at about 4% YTD, which would translate to about 8% per annum, assuming continuity of circumstances.
  • davidrmorandavidrmoran
    my bad
  • Old_JoeOld_Joe
    Ah, thanks. Nice to have company on that sort of thing.
  • WABACWABAC
    If you're a fan of Hyman Minsky maybe you're watching the speculative leverage going into the market. I didn't see much chatter one way or another when I googled stock market leverage.

    I might be looking in the wrong places though. With the vast bulk of my IRA in short duration bond funds and money markets I'm too lazy to look at fund flows into leveraged etf's. And then there is whatever is going on with bitcoin.
  • hank
    edited 10:03AM
    On Hedge Funds (a year old. Still may be of interest)
    Excerpt: ”JPMorgan showed current use of leverage - at roughly 2.7 times - is close to a peak reached since 2017 and higher than 98% of the time it has been tracked since then. Morgan Stanley also said leverage in the U.S. was higher only 2% of the time when tracked in the last fourteen years”

    Leveraged ETFs (stocks) with AUMs

    Leveraged ETFs (bonds) with AUMs

    ”Best Trading Leveraged Equity (OEFs) Mutual Funds”</

    F
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