I think we were moving into a bear market just before BREXIT. Brexit led to a lot of international money jumping into US assets for safety.
The fed was also more focused on raising interest rates prior to the referendum, but now they are holding off since the world economy looks a bit shaky.
All this just pushes the problem even further into the future. I think we are going to see a serious drop in the stock market within the next 2 years once the fed starts raising interest rates.
Granted, I’ve been saying this for some time now. I’ve lost quite a bit of opportunity over the past few years (I think 2012 was the year the stock market bumped 50%? can’t remember), but I really think at some point the shit will hit the fan. And it will be worse than dot com / 2008 because there have been some serious changes in world trade mechanics.
Another complication – GDP revisions. From 2007 Q1 till 2008 Q4 the gov materially overestimated GDP growth (then later revised down pre-crash and post-crash). So what if GDP growth is zero or even negative already? I wouldn’t be surprised at all.
It’s pretty much game over for this phase of the business cycle, just stagnate until the eventual decline…
Deutsche Bank team writes, “this could well be a cycle that does indeed die of old age,” with Corporate America electing to cut jobs to maintain profitability and ultimately fostering a downturn in consumer spending.
PA is basically saying brace for the market to tank or dip a little which is not an overly wild estimate. Earnings has been declining for last 5 quarters yet the market is at an all time high. On top of this we have rates that will go up gradually. Been in bull market for 8 years. Oil sector debt is still lingering some barely hanging on. Puts are pretty expensive so selling calls is not a bad move. Just look at the big institutional money moving out of equities on the bloomberg terminal and the Best P/E for last 10 years…While at it look at full time employment (this had a big positive blip in july) and contract employment graph and it rate of change.
Then come and criticize using facts. Let’s have a constructive debate not ohhh that never works in real life because i read it in my econ 101 book lol or nope you will go broke. ok finance god.
True, but low expectations are easy to beat. The fact that puts are so expensive shows that the risk of decline has been priced into the market.
Gradually being the key word…
Doesn’t matter
Don’t see this being a major issue going forward.
I’d be more worried if the institutions were fully invested. High institutional cash holdings are often a sign of higher upside than downside potential.
Listen, I’m not saying for sure a bear market isn’t around the corner, but I wouldn’t be so sure of it. Market timing is for the birds, just cost average monthly and you can’t lose long term.
You really think the risk of decline is already priced in because of high put prices? This means you don’t see any market downturns due to this reason? So the current level is justified…
Of course it’s not, anybody can see that. You can’t look to what the irrational market thinks, that’s circular.
This field requires some independent thinking, and decision making.
That’s one approach. Personally I just prefer timing the market. It’s not like it’s difficult to see when China has crashed (last year), or when the S&P500 has not crashed (now). It’s backward looking. Marc Faber (not a fan of irrational perma-bears) says it could drop by 50%, if that happens, then I’ll buy.
Correct, most likely all current risks (as judged in hindsight in the future) aren’t priced in. But the current KNOWN risks such as the ones infinity outlined, are most likely priced in at least to a certain extent. Could be over or under estimated, which is where the independent analysis comes in. However, even if you’re “right”, irrational markets, as you pointed out, are exactly that and can take a long time to reach your target. If you think you can time the market accurately and consistently then go right ahead. I am aware of my limitations and biases and won’t be playing that game.