I mean, just look at last year, when the S&P 500 index plunged over 30%, then proceeded to nearly double from then until now, in the midst of a global pandemic that froze big chunks of the world economy. Stock market returns make no sense.
Does this make stocks overinflated? Yes. Is it going to suddenly pop? Unlikely, since the conditions that caused it won't suddenly change (e.g. certain bonds have ticked up 1%~ but taken months).
This is not financial advise, but an investor myself, I'm on the other end of the spectrum. "Is it going to suddenly pop? Certainly! We just don't know when, how much and for how long. It could be june 2021, it could be 10 years after the Great Sino-Russian war of 2038".
That interest rate rise will likely pop the bubble.
Money isn't stored in other assets. It's transferred from the buyer of an asset to the seller. It doesn't cease to exist simply because you traded it for stocks (or gold or anything else). Now the seller has to deal with the consequences of holding the money you previously held. A rational trader factors in the costs of money when they price assets, therefore one doesn't avoid those costs by trading money for other assets.
You're not parking your money somewhere, you're giving it to someone else. Every time you buy BTC someone else is getting paid. Money goes in circles.
The first economist calls the bartender over and orders a bottle of champagne. The bartender asks what the celebration is about, and the economist responds, "we just grew GDP by $200 million dollars."
This is the natural consequence of negative real interest rates. With positive rates the infinite series representing the "discounted value of all future cash flows" converges to a single dollar value. With negative rates the series diverges: the "discounted value" of future cash flows is greater than their nominal value, simply because you're losing money with competing investments. The rational value of any investment that generates positive and predictable cash flows becomes infinite.
Right now the only thing holding a lid on equity valuations is the expectation that the Fed will eventually raise rates, and so cash flows from time periods > 2023 need to be discounted at positive rates. If that doesn't happen, or if they don't raise rates by more than the inflation rate at the time, things will go boom.
I disagree.
https://www.currentmarketvaluation.com/models/buffett-indica...
Unless you mean will it pop tomorrow, then yes that is unlikely. But the chances it pops “soon” seem quite likely. And it will be very ugly. I don’t know if we have ever seen a spring coiled this tight from money printing.
"The market can stay irrational longer than you can stay solvent."
A split between equity and bonds still seems prudent, I think.
Higher interest rates would create an incentive for traditional savings, but would destroy companies (and gov) holding big debts.
That real-estate is the least risky manner to protect wealth is a result of low interests rates and inflationary monetary policy. Printing as many dollars in the last year as there were in existence before, has perturbed a "normal" real-estate market. More dollars flying around means overbidding 10% is possible, especially since the additional interest is relatively negligible (wealthy folks will still take a loan in such conditions since rates are at rock-bottom).
Millennials were buying houses before all this too (I am and have) without this level of inflated prices (depending on where you are and how "free" the market is).
See what I did there? It’s not an argument.
If your ability to consume food, water, shelter, and entertainment has not been impaired but you are complaining about "asset inflation" because you learned economics from message boards perhaps you are being haunted by nonexistent boogeymen and need to chill out?
Never mind that online people have been predicting super inflation since at least 2009. I remember a Youtuber in 2009 that knew economics more than President Obama's advisors because Duck Tales did an episode on inflation.
But I guess by defining inflation as "stocks going up" the Duck Tales expert could have made it categorically impossible to be proven wrong since stocks tend to go up, further removing Duck Tales guy from the mainstream.
Take a look at ag futures my dude.
I would think we could discuss the affordabity or unaffordability of homeownership without making up terms like "asset inflation" and falling into alternative fact rabbit holes about the collapse of U.S. currency.
My contention is increased real estate prices are affecting people’s lives in various ways, such as delaying families, not having families, moving people away from their networks, and at least allowing for a smaller portion of spending on other things in life due to a larger portion going into real estate.
Personally, I would label this asset inflation, but I don't know about the whole currency collapse thing.
I don't know how to describe it, it's almost as if they have stopped "developing".
I've done the obvious thing and bought assets, but it keeps getting harder and at some point maybe all the people who are working hard might notice that they are doing all the work and people with assets are getting all the benefits. The government should be more neutral on whether asset owners or workers get the benefits of work - the market is naturally slanted enough without it being further tipped towards asset owners.
You might be happy in stasis. But this is an age of wonders and the people who do the work to bring it about should be compensated roughly in line with their contribution. As would be happening if the government didn't keep leaning in with monetary policy to prop up asset prices relative to wages.
As a bonus, if the government did leave the market alone, people would probably work harder and there'd be more stuff to go around, even ignoring the fact that more of it would be distributed to the sort of people who work hard.
I just think reinventing the term inflation encourages sloppy fringe conspiracy thinking.
It's my understanding if the government didn't intervene in markets we'd get events like the great depression returning periodically, which probably are in nobody's interest.
We should really be discussing the right government policies or the wrong one, but I doubt the answer to the problems of our time is zero policy.
In my bubble, its mostly tinfoil-hat-wearing crypto-enthusiasts pointing at examples of how toiletpaper comes in smaller packages-for-the-same-price, so my view is skewed.
But its safe to consider all these as datapoints that indicate possible worldwide inflation is building up.
[0]: https://politicalcalculations.blogspot.com/2020/01/the-price...
That is a very hard state to get even as a paranoid police state or literal aristocracy which views a minority of small farmer able to sustain their own plot as an existential threat. It is deeply unnatural in the "low probability" sense like your cat walking back and forth across a keyboard or swatting at it and writing passages of famous authors low.
1) Bonds and bank accounts are paying less than inflation, so to not lose money you need to invest in stock. That doesn't mean inflation is high rather bank accounts stink.
2) People figured out based on recent fed action that the U.S. has a policy of privatizing the gains and socializing the losses. Therefore stocks appear to not be risky, so people bought them up. The only reason you'd put money in a bank account rather than stock is stock can go down, but if you think the government will intervene to prevent stock going down, you might hold a greater amount of assets in stock, bidding up the price.
Well, a few ideas immediately spring to mind:
a) Historically low interest rates are causing people to chase gains elsewhere. Again, people end up looking to the markets. This has been an ongoing trend exacerbated by...
b) For folks not on the margins, discretionary spending was severely curtailed last year. They had to do something with that extra cash. Many people, during a time of tumult, chose to save. This is only exacerbated a trend that started way back in 2008 due to similar post-disaster psychological scarring. Where did people put the money? Into the markets.
c) Wealth concentration means a huge amount of the cash floating around has landed in the coffers of the largest institutions and individuals. Those institutions aren't using that cash to buy chips at the 7/11. They're either i) saving it, which means putting it into the market, or ii) using it to buy up assets (e.g. acquisitions) which itself bids up prices.
In short: What's going on the market probably has absolutely nothing to do with what's going on on mainstreet.
Of course, that's been true for the last 10 years as folks on the fringes continued to predict hyperinflation post-2008. But, the great thing about disaster predictions is you can always just move the goalposts out...
"things are getting more expensive"
and
"things (that I already own) are getting more expensive"
Apologies for the snark; I've been around the "what is inflation really measuring" debate one time too many.
With Governments around the world determined to never let the Economy fall or stay down even if it means directly sending money to the population and spending trillions at a moments notice to support Wall St there is no chance that over the long term the market will ever fall and stay down again.
Not even a WW or a natural disaster of the like we have never seen would keep the markets down. We would be naked, homeless and hungry and the market will continue to march higher. History is a perfect example of that.
When every other investment vehicle, except maybe housing is cratering you have a one-two where stocks looks great to invest in, and are much better than everything else. If it were to ever pop it would be because other investment products started to get much healthier - which to me isn't a bad thing.
This is not the case, as far as I can see.
Protips. Saas is the thesis. Long term solar is a 100x-1000x easy-ish bet. Capture is “good enough”, we are going to solve storage. Transmission will significantly collapse into storage. Game will change. The entire energy game.
This is WSB-level nonsense.
Yes the solar industry could probably go up 100x. No, the companies we're investing in today won't track that.
We are seeing the effects of the increase in money supply as inflation in the price of equities.
The problem here would be the belief that stock market is a mirror of the main economy. Personally, I believe the stock market represents very well the interest of the richest capitalists.
https://fred.stlouisfed.org/graph/fredgraph.png?width=880&he...
MMT apologists are the modern day petit bourgeois. Trust the experts!
Against a basket of currencies, the US dollar index is approximately 10% lower than it was from the start of the pandemic. Pointing to the fed money supply chart as evidence is woefully misleading.
Dollar index historical: https://tradingeconomics.com/united-states/currency
Counterpoint would be that against "a basket of assets" it is decreasing in value rapidly.
The EUR is probably tanking just as fast. What you are doing is like saying "shipping prices for steel have not increased, because the price to get a kilogram of steel across the ocean is hardly more than the price to get a kilogram of coal across the ocean".