Posted on 06/12/2021 7:37:41 AM PDT by BenLurkin
1. Historically high valuations are bad news
To begin with, the widely followed S&P 500 is pricey...really pricey. As of the close on June 7, 2021, the Shiller price-to-earnings (P/E) ratio for the S&P 500 hit 37.5. The Shiller P/E, also known as the cyclically adjusted P/E (CAPE) ratio, is based on inflation-adjusted earnings from the previous 10 years. This reading of 37.5 is well over double the average Shiller P/E ratio of 16.8, which dates back 151 years.
2. History says we're in trouble
Looking back 61 years, there have been nine bear markets. In the previous eight bear markets...there were either one or two double-digit percentage declines within three years following the bottom. In aggregate, we're talking about 13 double-digit drops spanning the three years following these eight bear-market bottoms.
3. Crashes and corrections happen frequently
According the market analytics company Yardeni Research, there have been 38 separate instances since the beginning of 1950 in which the S&P 500 has retraced by at least 10%. Put another way, we observe an official correction or crash in the benchmark index, on average, every 1.87 years.
4. The Federal Reserve can't remain dovish forever
One reason equities have rallied so ferociously off of the March 2020 bottom is the amount of support they've received from the nation's central bank. The Federal Reserve has stood pat on historically low lending rates and continued with its monthly bond-buying program that's designed to weigh down long-term yields.
5. Margin debt is skyrocketing
Perhaps the most terrifying fact of all is the current level of margin debt. Margin is the debt that brokerage customers take on to buy equities. Consider it a way to leverage their gains, as well as their losses, if they're incorrect about which way a stock will move.
(Excerpt) Read more at fool.com ...
“As of the close on June 7, 2021, the Shiller price-to-earnings (P/E) ratio for the S&P 500 hit 37.5. The Shiller P/E, also known as the cyclically adjusted P/E (CAPE) ratio, is based on inflation-adjusted earnings from the previous 10 years.”
One stock I have has a listed P/E of 41. Based in first quarter and company projected 2021 earnings, P/E is 21.
Well run companies? GE, IBM, GM were all well run companies. May be still are. But their stocks have been lagging hot stocks like Amazon, Tesla & many others.
The crash which helped me the most was covid crash in March 2020. I am up 50% which is unbelievable in 14 months.
Pandemic will. Wars have been good for the market overall.
This is why stocks are high and will remain so for the indefinite future - there’s no where else to put your money. Oh, and the system is rigged with 401(k) plans so that there is always money being automatically invested into it.
Yes, but you have to listen really diligently, otherwise you might overhear it when they ring the bell to signal that the Market has hit bottom, and that it's now time to start buying again.
Regards,
FED can NOT raise rates. The debt is too high!!!
US Treasury can not afford 5% rates with $30 Trillion debt.
The interest on debt will be bigger than the tax revenues.
So why market dropped from SPX 3000 to 2250 in 4 weeks in March-April 2020?
The direct advice they gave wasn't the most valuable resource for me. In fact, the nature of a radio show is such that they really can't give "financial advice" over the air. Instead, I found that just listening to what they said in broad terms about financial markets and asset classes, and how they dealt with callers in different types of financial situations, gave me a tremendous financial education that pays dividends (no pun intended!) even to this day.
Sorry — make that TWO people. I was going to add a third name (Dave Ramsey), but then I realized that he wasn’t on the air back when I started investing. LOL.
“1987 crash - Ronald Reagan”
Market tripled in three years before 1987 peak.
Two years later market higher than 1987 peak.
granum salis You can work the numbers and discover how you can make your money last infinitely:
The problem with any organization, is, it will eventually be run by an idiot. *cough-Biden* The idea is to detect when that is happening and bail out. I also try to stay away from companies that get huge...someone called it di-worse-ification. They get too far from their core competencies and start throwing money at things they don’t understand. Another clue on when to sell, if they go woke, or the CEO becomes a celebrity. Amazon is riding a moment in time that is the perfect storm for others and a stroke of luck from Heaven for Amazon. While it may still go up, I sold mine. As for Tesla...I think it’s smoke and mirrors and it’s doing too many things. I also don’t think electric cars make sense. Americans are not big on planning ahead and having limited range and few places to plug in...yeah, we’re not ready and Tesla’s evaluation is too high. I try to buy steaks and not sizzle...though it’s a crap shoot.
I agree with you. One unfortunate problem is that the “school of hard knocks” can sometimes be the most expensive education you can buy.
“For reasons out of my control, I’m sitting on >60% cash.”
Essentially locked in. 2.5% low-tax qualified dividends.
I had a co-worker take early retirement last year just as the COVID crash was bottoming out. Against my advice, he completely moved his 401k completely out of stocks because he felt the markets would keep crashing. Weeks later, as stocks recovered their value, he was kicking himself because he locked in his losses and lost hundreds of thousands of dollars of his portfolio. I told him he should move back in stocks but he didn't and so he missed out when the stock market shot to new highs. Now he is faced with the real danger of running out of money in retirement. He'll likely have to go back into the workforce.
It's a tough lesson to learn. As another poster here pointed out, even the experts cannot time the market. Us working folk shouldn't even try. Just hold your stocks for the long term and let dollar cost averaging and compound interest do its magic. The only tweaks I've ever done to my 401K over the past 40 years was slowly allocate more to safer funds as I age. But even now as I approach retirement age, I still have about a 60/40 split with 60% in stocks.
You nailed it. We are all on our own now. Biden/Kamala are sucking all the buying power out of your accumulated portfolio’s. You may look at the figures and think you are ahead, but then try to buy something like a house or car or get surgery done.
> FED can NOT raise rates. The debt is too high!!! <
I think you and TexasGator are right about that. The Fed will accept the risk of high inflation in order to keep Congress’s borrowing costs low.
That will work until it doesn’t. Then look out below!
As a side note, I’ve read that blue-chip companies do okay in periods of high inflation. And that’s because they can raise prices easier than most other companies can. I don’t know how true that is, but maybe it’s something woth considering investment-wise.
No kidding! Tesla stock market capitalization value is more than 10 times that of GM stock. But GM sells more than 10 times in car sales than Tesla. Stock market is all about how investors “feel”.
I was 100% out of stocks at beginning of March 2020. In May 2020 I was 100% back in stock index funds. It was NOT skill. It was pure luck.
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