Stock Market Update (Where's Eduardo?)

[KnightWhoSaysNit]

So over the next 20 plus years you think the markets will not grow at all? Despite the appreciation we have seen over the past 40 years? Is that your bottom line? And the Baby Boomers all being retired hurts our economy because all future generations are not as skilled or smart as them? Hmmm.

As I wrote, I think that 10 years from now, unless you pick the right stocks, you may be at best dead even with a 10 year bond and/or inflation (bought at today's levels, and held for 10 years). (I'm not the only one to say this. Some pundits are looking at the same data and saying that the stock market, as a whole, will not cover inflation. This occurred during the 1970s and, more recently, during the first decade of this century. It is time for a repeat.

At worst you might find yourself down 5% per year, i.e., a crash or pervasive bear market. That is what data says if history is an indication. As I wrote, the only way to do better than this (the historical response) is to pick the right stocks or for there to be some kind of extreme innovation that can cover the headwinds. I mentioned AI and/or some very cheap form of energy (yet to be discovered and developed). Neither possibility, as of now, can show how the gains are going to be enough. Public debt is a staggering headwind. You are simply not being shown the reality of the cost. Politicians don't want you to know how bad it is.

I have posted this link -- the S&P 500 inflation-corrected history -- many times. It is clearly cyclic, with cycles tending towards ever shorter periods. An important thing to note is that the Fed has shortened and/or eliminated recessions by printing trillions of dollars and flooding the economy with easy money, thereby putting us into the current quagmire of fighting inflation. It does this because the fiscal side spends beyond its intake, else that spending would instantly send the economy into recession/depression. If you want to see the peaks and valleys through a different lens then look at the Shiller PE in this chart. It clearly identifies the 1929 crash, the dot-com bubble/crash, the 2008 crash, the Covid bubble (of 2021), and our current speculative bubble.

Now the S&P might rise to 8,000 this year, or even 10,000 next year. Nothing contains irrational exuberance and emotion, just as we saw during the last two years to get us to these extreme valuations. But eventually history has shown that, in the end, valuations tend to matter. The herd starts moving in the opposite direction and markets fall faster than they once rose. The speculators suddenly look to their files and see where valuations stand. It's the way it is.

My concern is for those people that think they can retire today and get a 10% real return on stocks throughout their golden years. That is unlikely to happen unless you are really good, and lucky, at putting your chips on the right companies. The vast majority of traders are unable to win at this in anything other than a bull market.

As for the education and skills of baby boomers versus the younger generation, if you can't see the difference then I don't know what to tell you. Having young men living in their parent's basement was once not a widespread problem, and we did not have to give everyone an "A" to make them feel good about themselves. Look at the data. The USA is now way down on the list relative to other developed countries in terms of basic competencies. It's the opposite of what it once was.

We should all be worried that expectations are way out of whack with the likely reality. It is this that concerns me most. No one in a leadership position -- at any point throughout the political spectrum -- is talking straight with the public. That is what can lead to a destabilization of society. Most of the conclusions out there look at only a subset of the issues. I would love to highlight why "tax the rich/corporations" is no longer feasible (when it once was post WW2) but I don't want this thread to get tossed. There is a reason for the opposite to occur in today's global economy.

People really need to be educated about this stuff -- economics, geopolitics, monetary policy, finance, investing, etc. I wish someone had done it for me when I was young. Could have made a big difference. Today we squash communication instead of encouraging learning through debate, open information, and honesty.

 

[KnightWhoSaysNit]

I should amend what I wrote about the generational "headwinds" -- ultimately an impact on corporate earnings and thus the stock market valuations ...

In 1960 there were 5.1 workers per social security retiree. This has fallen to the current 2.9 workers per retiree and is expected to reach just 2 by 2030. That is the mother of all Ponzi schemes that will inevitably fail.

When the Fed printed trillions during the pandemic and caused stocks/real estate to balloon it drove many into believing they had the funds to retire. Those people were already the ones with money, i.e., the skilled people that society needs to generate wealth. That productivity is now gone and represents what I would call an "overhead expense."

 

[joeaubie21]

The rich man has switched nics again.

 

[KnightWhoSaysNit]

I use a 7 year rule which is very conservative. If I'm going to be spending the money in 7 years, I want it in something safe and stable. It costs a lot in returns to do that but I sleep better. There have been bear markets that lasted 10 years so that's what I'm prepared for.

@tboyer after reading through this thread again I was wondering about the details of a "7 year rule." You think that the market will normally turn after (at worst) a 7 year bear market but what does this actually mean in terms of allocation? If you look at many of these (long term) oscillations in the market over the last century it took anywhere from one to three decades for the market to recover from losses to match what you would have had with your money sitting in a money market account. There are much shorter oscillations at times (e.g., 2021 to 2023), but for a retiree we need to be concerned about recovering from one of the longer duration corrections.

Let's suppose you are planning a 30 year retirement at age 65 but want to protect against losses that could occur over a 7 year period. A typical rule of thumb is to allocate (100 minus Age)%, which would mean 35% stock at age 65. My guess is that this recommendation takes into account the concerns that you highlight. If we know our starting point in terms of "risk" at age 65 then we might correct higher or lower from this 100-A rule of thumb.

In other words, given the extreme valuations this year, we might be considerably less than the recommendation, since the recommendation is really an unknowing rule-of-thumb based on averages. Conversely, back in 2011 we could look at valuations and conclude that the risk is much lower. Thus that year we could be considerably above 100-A.

For me personally I am looking at a correction to 100-A based on statistics, i.e., the probability that the market is overvalued (and will decrease) or undervalued (and will increase). So if P is a probability based on valuations relative to historic norms, my stock allocation becomes P(100-A)%. I have used various methods in calculating P and all of them suggest that we are at the extremes in the bell curve, to the point that you might as well not be in the market right now.

So help me understand the "7 year rule." What is that exactly in terms of stock allocation if one is beginning a 30 year retirement. For that which is not in stock, what is your fixed income duration? That is another problem, perhaps even more complicated, which bears discussion. If you retired during the early 80s you could have bought both stocks and bonds on the cheap. In fact you could have bought a pension (long bonds) and done better than holding stock despite stocks being cheap. Today we are in the exact opposite situation, so going forward I see retirement planning as becoming much more difficult (i.e., a need to be ultra conservative, in both investing and living, to prevent running out of money).

We should all bear in mind that the vast majority of retirees don't have anywhere near what they will need to retire comfortably. What that means for the rest of us is that, one way or another, we will wind up needing to finance those people. They get one vote and we get one vote.

 

[JimNazium]

He was at karaoke on Friday Night. eduardo

 

[fastlax16]

Glad he got the price of eggs under control at least.

 

[ryoder1]

@tboyer after reading through this thread again I was wondering about the details of a "7 year rule." You think that the market will normally turn after (at worst) a 7 year bear market but what does this actually mean in terms of allocation? If you look at many of these (long term) oscillations in the market over the last century it took anywhere from one to three decades for the market to recover from losses to match what you would have had with your money sitting in a money market account. There are much shorter oscillations at times (e.g., 2021 to 2023), but for a retiree we need to be concerned about recovering from one of the longer duration corrections.

Let's suppose you are planning a 30 year retirement at age 65 but want to protect against losses that could occur over a 7 year period. A typical rule of thumb is to allocate (100 minus Age)%, which would mean 35% stock at age 65. My guess is that this recommendation takes into account the concerns that you highlight. If we know our starting point in terms of "risk" at age 65 then we might correct higher or lower from this 100-A rule of thumb.

In other words, given the extreme valuations this year, we might be considerably less than the recommendation, since the recommendation is really an unknowing rule-of-thumb based on averages. Conversely, back in 2011 we could look at valuations and conclude that the risk is much lower. Thus that year we could be considerably above 100-A.

For me personally I am looking at a correction to 100-A based on statistics, i.e., the probability that the market is overvalued (and will decrease) or undervalued (and will increase). So if P is a probability based on valuations relative to historic norms, my stock allocation becomes P(100-A)%. I have used various methods in calculating P and all of them suggest that we are at the extremes in the bell curve, to the point that you might as well not be in the market right now.

So help me understand the "7 year rule." What is that exactly in terms of stock allocation if one is beginning a 30 year retirement. For that which is not in stock, what is your fixed income duration? That is another problem, perhaps even more complicated, which bears discussion. If you retired during the early 80s you could have bought both stocks and bonds on the cheap. In fact you could have bought a pension (long bonds) and done better than holding stock despite stocks being cheap. Today we are in the exact opposite situation, so going forward I see retirement planning as becoming much more difficult (i.e., a need to be ultra conservative, in both investing and living, to prevent running out of money).

We should all bear in mind that the vast majority of retirees don't have anywhere near what they will need to retire comfortably. What that means for the rest of us is that, one way or another, we will wind up needing to finance those people. They get one vote and we get one vote.

Basically you are predicting we are headed for the worst ever 30 plus year stretch in history with the stock market. And sounds like the economy as well. We would all be hard pressed to find any expert anywhere who has close to the doom and gloom you are forecasting. We're not going to have a market correction or no growth for the next 20 or 30 years. Do you really believe in 20 years the S&P will he at like 5,800 or lower? Literally doesn't budge for 20 years yet it has doubled in about 10 years or whatever. Yeah, I know you have all your excuses of why it has done well and they are all flukey one timers that will never happen ever again that explain all the growth. So there you have it, the gravy train has ended and we all better pray if we are retired that we can hang on because our current portfolio will never appreciate. Any Walmart greeter job openings?

I am not saying we are guaranteed to be rolling in 10% equities returns for decades but I don't see how your doomsday we all are going to run out of money who retire soon scenarios become true. I mean if we listen to you we should all liquidate now and put all our money in a savings account that earns a quarter percent interest every year.

 

[KnightWhoSaysNit]

Basically you are predicting we are headed for the worst ever 30 plus year stretch in history with the stock market. And sounds like the economy as well. We would all be hard pressed to find any expert anywhere who has close to the doom and gloom you are forecasting. We're not going to have a market correction or no growth for the next 20 or 30 years. Do you really believe in 20 years the S&P will he at like 5,800 or lower? Literally doesn't budge for 20 years yet it has doubled in about 10 years or whatever. Yeah, I know you have all your excuses of why it has done well and they are all flukey one timers that will never happen ever again that explain all the growth. So there you have it, the gravy train has ended and we all better pray if we are retired that we can hang on because our current portfolio will never appreciate. Any Walmart greeter job openings?

I am not saying we are guaranteed to be rolling in 10% equities returns for decades but I don't see how your doomsday we all are going to run out of money who retire soon scenarios become true. I mean if we listen to you we should all liquidate now and put all our money in a savings account that earns a quarter percent interest every year.

STOP putting YOUR words into MY mouth. I made no such predictions that you highlight within this thread (though I would not be at all surprised if what you wrote actually did come true), nor any other thread. You keep exaggerating my numbers.

I have highlighted that indeed there were 10-25 year periods during the past century where you would have done better to put your money into a money market. I did state that the oscillations seem to have a reduced period. But I did not say that any of the past dips will play out in the same way, i.e., with the same period, depth, etc., or anything such. I gave a 10 year model derived from the .com bubble, and that is pretty much it.

What took 2.5 decades after the 1930 crash and 1968 declines, or 1.5 decades after the 2000/2008 declines, might take less time in the future. We live in an age where change is more rapid. Should one of these large declines occur in the future it might very well precipitate WW3. We just don't know. We might have UFO Disclosure and the reverse could happen -- a technological golden age.

I stated that there are potential tailwinds (technology and energy yet to be discovered) which must be weighed against the headwinds (workforce/retiree, skills, debt). No one knows, included me, which way that will tilt. What we CAN say, however, as @bdgan wrote, is that this is one of six periods (using the cyclically adjusted PE) for which there has always been a significant selloff. That seems to be happening right now.

Get a hold of your feelings. I get it. You are taking losses today. That happens to all of us. Can't have gains without losses, nor growth without risk.

Clean it up or you will be put on Ignore.

 

[Chickenman Testa]

 

[GreggK]

It's all part of the plan Chickenman, don't you know?
Now, drink your koolaid!!!

 

[Chickenman Testa]

It's all part of the plan Chickenman, don't you know?
Now, drink your koolaid!!!

We’re just woke, DEI cucks. I need to start listening to Rogan

 

[ryoder1]

STOP putting YOUR words into MY mouth. I made no such predictions that you highlight within this thread (though I would not be at all surprised if what you wrote actually did come true), nor any other thread. You keep exaggerating my numbers.

I have highlighted that indeed there were 10-25 year periods during the past century where you would have done better to put your money into a money market. I did state that the oscillations seem to have a reduced period. But I did not say that any of the past dips will play out in the same way, i.e., with the same period, depth, etc., or anything such. I gave a 10 year model derived from the .com bubble, and that is pretty much it.

What took 2.5 decades after the 1930 crash and 1968 declines, or 1.5 decades after the 2000/2008 declines, might take less time in the future. We live in an age where change is more rapid. Should one of these large declines occur in the future it might very well precipitate WW3. We just don't know. We might have UFO Disclosure and the reverse could happen -- a technological golden age.

I stated that there are potential tailwinds (technology and energy yet to be discovered) which must be weighed against the headwinds (workforce/retiree, skills, debt). No one knows, included me, which way that will tilt. What we CAN say, however, as @bdgan wrote, is that this is one of six periods (using the cyclically adjusted PE) for which there has always been a significant selloff. That seems to be happening right now.

Get a hold of your feelings. I get it. You are taking losses today. That happens to all of us. Can't have gains without losses, nor growth without risk.

Clean it up or you will be put on Ignore.

I'm in it for the long term and am confidrnt I will get at least 3-4% growth on average over the next 20 years. I'm not upset over any losses now.

 

[KnightWhoSaysNit]

I'm in it for the long term and am confidrnt I will get at least 3-4% growth on average over the next 20 years. I'm not upset over any losses now.

Well, if those are your goals you don't need to be in stocks at all, unless you mean "real" growth, i.e., the yield above inflation.

If you want a real yield above 1-2% then I think it behooves one to consider current valuations, which by my calculations are above the 90% probability level for a 10 year cycle (i.e., very risky).

20 years is obviously even more uncertain since we could go through several business cycles over that span.

One thing is for sure. The current level of expanding debt will be "unsustainable". (Powell's words, not mine.). That means the "stimulus" that got us to these valuations will need to be reversed, and to cover that, the "tailwinds" need to exceed the "headwinds."

Consider looking at the cycles over a century for the 10 year bond yield. Some economists suggest that we are in an upswing, meaning that if interest rates don't increase as in the past (due to debt), then inflation will increase to cover. That is not good for equities, nor bonds of any significant duration.

In short, as I wrote, I believe we are in for an extended period of "stagflation." If so, then the best investments at the current time would be cash/money markets, short duration TIPS, gold, energy, and some pockets of real estate, i.e., physical assets -- basically what worked during the 1970s but has been out of favor in recent decades.

The current administration is trying to reverse the offshoring of the past half of a century. This must be done. No question. That takes investment (over "returns"). To re-shore manufacturing adds inflationary pressure, actually a decline in real wages. (No one will admit to this.) It's a reverse of what started in 1980.

I expected this to begin about 10 years ago, but then we had tax cuts (that were not paid for), and reckless stimulus during the pandemic on top of it. Thus debt/GDP more than doubled, adding to the quandary. We got a bite out of the rise in interest rates (due to Fed bond buying during the pandemic). Now we have the inflationary pressure, which is hurting both Wall Street and Main Street.

No free lunch I am sorry to say. We need those novel inventions, innovation, productivity, etc. But all of that stuff is "promise," whereas the headwinds are real. Without that we basically have a forced tax increase -- either tariffs, inflation, IRS, or a combination of all of these. Result: Decline in standard of living unless saved by invention/innovation/productivity.

 

[PurposePitch]

Oh, goody ... NitwitWhoFancieesHimselfaKnight is blabbering on for pages and pages (with stuff a knowledgeable person could state in a couple sentences) to spew the same old tired doomsday nonsense he's been spewing for years - and having to come up with excuses as to why his predictions haven't come true ... but it's coming!

Right now, just worry about the idiot crew's tariff policy, the inflationary effect of chilling our immigrant labor force, and just pray the idiots don't follow through on their thought to provide even more stimulus in an attempt to curry favor after the common folks duped into supporting him realize they aren't getting any tax cuts.

If we can trick Elon into going up in his next rocket by telling him there's a random woman in there he can impregnate, so he can later abandon his seed yet again ... and if we can convince a certain someone to keep his Hitlerian expansion aspirations to a Risk board game, where he can take over Canada, Greenland, the Panama Canal, the Gaza Strip and the Gulf of Mexico to his heart's content without any harm coming our way, we'll be able to weather the storm.

 

[NittanyLionRoar]

I kept referring to something called the “Eduardo Indicator” during the bull market…which was basically when he came on to complain that the stock market had dropped, it meant it was a buy. I even made a nice little chart showing all the times he freaked out as the stock market continued its ascent.

Now that there’s real problems in the economy that are going to be exacerbated by tariffs, I’m sure he’s caught holding the bag, buying at the very top when dear leader was elected. I spent all of February rotating out of growth/crypto and into TLT, gold, healthcare stocks and ETF (XLV), a high-yielding dividend ETF (SCHD), and Berkshire Hathaway. So far, so green.