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(Global Geopolitics)   The US stock market continues climbing ad infinitum thanks to companies, among other things, being their own biggest stock purchasers, in turn helping the USA climb back into its third largest stock bubble in history   (glblgeopolitics.wordpress.com) divider line 61
    More: Interesting, U.S., Andrew Smithers, U.S. stocks, third base, stagflation  
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757 clicks; posted to Business » on 18 Jul 2014 at 11:01 AM (6 days ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2014-07-18 09:10:35 AM

adask.files.wordpress.com

 
2014-07-18 09:26:11 AM
If Global Geopolitics is calling it a bubble, we can safely assume the opposite.
 
2014-07-18 09:29:45 AM
i.imgur.com
 
2014-07-18 09:32:49 AM
QE4.

quantitative easing, artificially low interest rates have incentivized people to buy stocks instead of bonds, where there is no return.  this is being led by the Fed.  Interest rates are being kept artificially low, in defiance of the open market.  this has led to a bubble.

the bubble is being caused by government forces,  not market forces.  specifically, the Federal Reserve Bank.  it is keeping interest rates below the rates the market would set them.  thus, bonds are paying paltry returns.  thus, investors are being forced to buy stocks to get a decent return and companies are being forced to use stock to raise capital.  More exposure in stocks than either side would prefer.

when this bubble bursts everyone will still blame the free market and wall street, though.  i'm not worried about them accidentally laying the blame where it actually should be laid.
 
jbc [TotalFark]
2014-07-18 09:56:19 AM

Marcus Aurelius: If Global Geopolitics is calling it a bubble, we can safely assume the opposite.


Same conclusion when Sloth calls it a bubble.
 
2014-07-18 10:07:19 AM

SlothB77: QE4.

quantitative easing, artificially low interest rates have incentivized people to buy stocks instead of bonds, where there is no return.  this is being led by the Fed.  Interest rates are being kept artificially low, in defiance of the open market.  this has led to a bubble.

the bubble is being caused by government forces,  not market forces.  specifically, the Federal Reserve Bank.  it is keeping interest rates below the rates the market would set them.  thus, bonds are paying paltry returns.  thus, investors are being forced to buy stocks to get a decent return and companies are being forced to use stock to raise capital.  More exposure in stocks than either side would prefer.

when this bubble bursts everyone will still blame the free market and wall street, though.  i'm not worried about them accidentally laying the blame where it actually should be laid.


All true. But I would also add that the market unhooked from the real world in the 90s. I mean it wasn't in lock step before then but once the day trader started to become a good percentage of the market it was completely gone. Now with micro traders it's like that mechanical horse racing game.

i.imgur.com
 
2014-07-18 10:08:55 AM
Not really. There's nothing wrong with cash buy backs per se, they are a legitimate way to pay back investors in the same way stocks used to pay a dividend.

But what you have to understand is that this is the way productivity gains go to the 1%. The executives of the company, who make most of their money on stock options, give themselves money out of the coffers of the company for short term gain.

Eventually, that's all they do, and long term the company inevitably suffers as they try to cut costs to boost share price. By cutting costs I of course mean they lay off the people who actually produce for them, and eventually you have an IBM on your hands, a company bloated with middle management, a bunch of dead wood (most people with a brain have left for a better job with better pay) and no real product to speak of outside of marketing drivel. Oh every few years they buy a company (acquire someone else's R&D) but it's not integrated with the company and rarely ever pays for itself as the producers of the acquired company jettison or are laid off before integration is complete.

Microsoft/Nokia is your latest example. Here's a company making hand over fist quarter after quarter but they're going to lay of 18,000. It's hard to argue that leadership isn't doing what it's goals are, cutting bad programs to provide maximum shareholder value. However, it's also hard to argue that it hurts a lot of people in the process.

In the end we should all be working a lot less than we are, not because we feel entitled to it but because there's no reason to work as we do anymore. We have an absolutely ridiculous system considering the ubiquity of technology. The people with capital and means know it. The battle is already upon us, we just don't know it yet. It's started in other countries, but it's on its way.
 
2014-07-18 10:16:17 AM

SlothB77: QE4.

quantitative easing, artificially low interest rates have incentivized people to buy stocks instead of bonds, where there is no return.  this is being led by the Fed.  Interest rates are being kept artificially low, in defiance of the open market.  this has led to a bubble.

the bubble is being caused by government forces,  not market forces.  specifically, the Federal Reserve Bank.  it is keeping interest rates below the rates the market would set them.  thus, bonds are paying paltry returns.  thus, investors are being forced to buy stocks to get a decent return and companies are being forced to use stock to raise capital.  More exposure in stocks than either side would prefer.

when this bubble bursts everyone will still blame the free market and wall street, though.  i'm not worried about them accidentally laying the blame where it actually should be laid.


You might also observe that the interest rates are being kept low so that investment banks can make an easy buck.  Take the banks out of the equation and we'd get Glass-Steagle back.  Regulator shopping just tops off the reckless banking cake.
 
2014-07-18 10:25:35 AM

SlothB77: QE4.

quantitative easing, artificially low interest rates have incentivized people to buy stocks instead of bonds, where there is no return.  this is being led by the Fed.  Interest rates are being kept artificially low, in defiance of the open market.  this has led to a bubble.


I'm not entirely sure why anyone should buy bonds anymore. Honestly I'd love someone to explain to me.

First off, most bonds pay crap. When the bubble bursts and companies begin to eat dirt, bonds become a temporary safe haven but you're probably better off holding precious metals as those artificially inflate.During a time of recovery, stock prices recover and bonds get destroyed - for the next I dunno 3-5 years. When interest rates go up, bonds are worth less and both stocks and bonds get hammered. Right now interest rates are so low...bonds are only a temporary safe haven.


The only time to buy bonds is right before the stock market crash. And no one knows when that will be, only that we're in a bubble.

The stock market game has been rigged for a while, but it's worse now. The political climate is so bad that Obama basically can't raise interest rates because it's an election year because then stocks will go down and layoffs will begin again and incumbent Democratic Senators will be on the hot seat. Let's be honest that's why we haven't seen interest rates raised yet.

With Bush the house of cards was already crumbling. Obama can afford 4 more months of bubble.  Basically, sell stock and buy bonds right around the November elections.
 
2014-07-18 10:53:02 AM
Next time the market crashes, I'm maxing out my 401k contributions (buy low/sell high). Next bull market should take me right up to retirement (or at least close enough).
 
2014-07-18 11:08:12 AM

bdub77: SlothB77: QE4.

quantitative easing, artificially low interest rates have incentivized people to buy stocks instead of bonds, where there is no return.  this is being led by the Fed.  Interest rates are being kept artificially low, in defiance of the open market.  this has led to a bubble.

I'm not entirely sure why anyone should buy bonds anymore. Honestly I'd love someone to explain to me.

First off, most bonds pay crap. When the bubble bursts and companies begin to eat dirt, bonds become a temporary safe haven but you're probably better off holding precious metals as those artificially inflate.During a time of recovery, stock prices recover and bonds get destroyed - for the next I dunno 3-5 years. When interest rates go up, bonds are worth less and both stocks and bonds get hammered. Right now interest rates are so low...bonds are only a temporary safe haven.

The only time to buy bonds is right before the stock market crash. And no one knows when that will be, only that we're in a bubble.

The stock market game has been rigged for a while, but it's worse now. The political climate is so bad that Obama basically can't raise interest rates because it's an election year because then stocks will go down and layoffs will begin again and incumbent Democratic Senators will be on the hot seat. Let's be honest that's why we haven't seen interest rates raised yet.

With Bush the house of cards was already crumbling. Obama can afford 4 more months of bubble.  Basically, sell stock and buy bonds right around the November elections.


So you're saying to buy bonds at the artificially low interest rates, at no return, just before the crash wherein interest rates will presumably increase, leaving you holding let's say a $500 bond at 1% interest instead of a $500 bond at 3% interest?
 
2014-07-18 11:08:55 AM

damageddude: Next time the market crashes, I'm maxing out my 401k contributions (buy low/sell high). Next bull market should take me right up to retirement (or at least close enough).


You should always max it if you can. Market timing is incredibly hard because you don't know when it will crash and when it will rise.


SlothB77: QE4.

quantitative easing, artificially low interest rates have incentivized people to buy stocks instead of bonds, where there is no return.  this is being led by the Fed.  Interest rates are being kept artificially low, in defiance of the open market.  this has led to a bubble.

the bubble is being caused by government forces,  not market forces.  specifically, the Federal Reserve Bank.  it is keeping interest rates below the rates the market would set them.  thus, bonds are paying paltry returns.  thus, investors are being forced to buy stocks to get a decent return and companies are being forced to use stock to raise capital.  More exposure in stocks than either side would prefer.

when this bubble bursts everyone will still blame the free market and wall street, though.  i'm not worried about them accidentally laying the blame where it actually should be laid.


This. Also, banks are borrowing money (low interest rates = easy borrowing) and putting that money in stocks (which raises the stock prices, obviously). They are easily making profits due to the low interest rates on the borrowing. When interest rates rise, this could go very badly.
 
2014-07-18 11:14:22 AM
People act as though stock prices have no relation to earnings.  Yes, stocks have gone up a bunch since 2009.  Earnings have gone up just as much, if not more.  The S&P is at around a 17 PE, so it's not crashing unless earnings crash.  If companies in the US suddenly lose 20% of their projected earnings, then yes, the market will crash.  But stocks don't move in a vacuum, there has to be a trigger.  The internet bust and the financial crash both had causes, they weren't just stocks dropping because they were "too expensive".
 
2014-07-18 11:23:49 AM

Incontinent_dog_and_monkey_rodeo: People act as though stock prices have no relation to earnings.  Yes, stocks have gone up a bunch since 2009.  Earnings have gone up just as much, if not more.  The S&P is at around a 17 PE, so it's not crashing unless earnings crash.  If companies in the US suddenly lose 20% of their projected earnings, then yes, the market will crash.  But stocks don't move in a vacuum, there has to be a trigger.  The internet bust and the financial crash both had causes, they weren't just stocks dropping because they were "too expensive".


What was the trigger of the internet bust?
 
2014-07-18 11:26:23 AM

Marcus Aurelius: SlothB77: QE4.

quantitative easing, artificially low interest rates have incentivized people to buy stocks instead of bonds, where there is no return.  this is being led by the Fed.  Interest rates are being kept artificially low, in defiance of the open market.  this has led to a bubble.

the bubble is being caused by government forces,  not market forces.  specifically, the Federal Reserve Bank.  it is keeping interest rates below the rates the market would set them.  thus, bonds are paying paltry returns.  thus, investors are being forced to buy stocks to get a decent return and companies are being forced to use stock to raise capital.  More exposure in stocks than either side would prefer.

when this bubble bursts everyone will still blame the free market and wall street, though.  i'm not worried about them accidentally laying the blame where it actually should be laid.

You might also observe that the interest rates are being kept low so that investment banks can make an easy buck.  Take the banks out of the equation and we'd get Glass-Steagle back.  Regulator shopping just tops off the reckless banking cake.


You actually think that interest rates are being kept low so the investment banks can make money?

The banks might be profiting from low interest rates, but that's just a side effect. It isn't the intention of the fed to improve bank earnings by keeping rates at historic lows.
 
2014-07-18 11:30:35 AM

Debeo Summa Credo: Incontinent_dog_and_monkey_rodeo: People act as though stock prices have no relation to earnings.  Yes, stocks have gone up a bunch since 2009.  Earnings have gone up just as much, if not more.  The S&P is at around a 17 PE, so it's not crashing unless earnings crash.  If companies in the US suddenly lose 20% of their projected earnings, then yes, the market will crash.  But stocks don't move in a vacuum, there has to be a trigger.  The internet bust and the financial crash both had causes, they weren't just stocks dropping because they were "too expensive".

What was the trigger of the internet bust?


People realized that buying stocks at P/E ratios of 500 was pants on head retarded?

/OMG stocks have never been this high that means it's a bubble!
 
2014-07-18 11:33:12 AM
FTA: U.S. stocks are now about 80% overvalued on certain key long-term measures, according to research by financial consultant Andrew Smithers, the chairman of Smithers & Co. and one of the few to warn about the bubble of the late 1990s at the time.

I remember plenty of people warning about the dot com bubble. And also Smithers!
 
2014-07-18 11:33:56 AM
Fark Market News:

All the Munny thats fit to print.

Real News. Real Munny!
 
2014-07-18 11:36:46 AM

Debeo Summa Credo: Incontinent_dog_and_monkey_rodeo: People act as though stock prices have no relation to earnings.  Yes, stocks have gone up a bunch since 2009.  Earnings have gone up just as much, if not more.  The S&P is at around a 17 PE, so it's not crashing unless earnings crash.  If companies in the US suddenly lose 20% of their projected earnings, then yes, the market will crash.  But stocks don't move in a vacuum, there has to be a trigger.  The internet bust and the financial crash both had causes, they weren't just stocks dropping because they were "too expensive".

What was the trigger of the internet bust?


Those companies didn't have the corresponding earnings to justify the price.

Which is why people calling today's stock-market a "bubble" because it's now higher are being myopic. S&P/corporate profits are lower than the historical average.
 
2014-07-18 11:37:46 AM

Incontinent_dog_and_monkey_rodeo: People act as though stock prices have no relation to earnings.  Yes, stocks have gone up a bunch since 2009.  Earnings have gone up just as much, if not more.  The S&P is at around a 17 PE, so it's not crashing unless earnings crash.  If companies in the US suddenly lose 20% of their projected earnings, then yes, the market will crash.  But stocks don't move in a vacuum, there has to be a trigger.  The internet bust and the financial crash both had causes, they weren't just stocks dropping because they were "too expensive".


This
 
2014-07-18 11:38:57 AM
I am not worried. The fundamentals are all there *snicker* its not like everyone isn't leveraged up the whazoo on shaky derivatives anymore *snort*.
 
2014-07-18 11:39:43 AM

SlothB77: Interest rates are being kept artificially low, in defiance of the open market


Derp
 
2014-07-18 11:40:50 AM

impaler: Debeo Summa Credo: Incontinent_dog_and_monkey_rodeo: People act as though stock prices have no relation to earnings.  Yes, stocks have gone up a bunch since 2009.  Earnings have gone up just as much, if not more.  The S&P is at around a 17 PE, so it's not crashing unless earnings crash.  If companies in the US suddenly lose 20% of their projected earnings, then yes, the market will crash.  But stocks don't move in a vacuum, there has to be a trigger.  The internet bust and the financial crash both had causes, they weren't just stocks dropping because they were "too expensive".

What was the trigger of the internet bust?

Those companies didn't have the corresponding earnings to justify the price.

Which is why people calling today's stock-market a "bubble" because it's now higher are being myopic. S&P/corporate profits are lower than the historical average.


I agree that stocks dropped because stocks were too expensive relative to earnings, which means that stocks did drop because "they were too expensive", contrary to what incompetent doggy doo claimed.

There was no trigger other than the fact that prices were too high and desire to sell at those prices began to outweigh the desire to buy.
 
2014-07-18 11:49:36 AM
img.fark.net
 
2014-07-18 11:49:44 AM

Xyphoid: So you're saying to buy bonds at the artificially low interest rates, at no return, just before the crash wherein interest rates will presumably increase, leaving you holding let's say a $500 bond at 1% interest instead of a $500 bond at 3% interest?


Honestly I don't quite know the best strategy. Depends on what you can invest in. 401k wise you might have limited options. Stocks will also go down with interest rates raised. Where do you put your money?

I guess the best option would be to take your holdings out of stocks (because those will crash with interest rates going up), put that cash into money markets, then invest in bonds after interest rates go up, then reinvest in stocks.

Or as I generally do, don't play the game, just hold on for dear life as the markets whipsaw into a new higher bubble.
 
2014-07-18 11:58:39 AM

bdub77: Xyphoid: So you're saying to buy bonds at the artificially low interest rates, at no return, just before the crash wherein interest rates will presumably increase, leaving you holding let's say a $500 bond at 1% interest instead of a $500 bond at 3% interest?

Honestly I don't quite know the best strategy. Depends on what you can invest in. 401k wise you might have limited options. Stocks will also go down with interest rates raised. Where do you put your money?

I guess the best option would be to take your holdings out of stocks (because those will crash with interest rates going up), put that cash into money markets, then invest in bonds after interest rates go up, then reinvest in stocks.

Or as I generally do, don't play the game, just hold on for dear life as the markets whipsaw into a new higher bubble.


Invest in the worst of human nature.  It's hard to go wrong with vice and violence when it comes to people
 
2014-07-18 11:58:50 AM
machoprogrammer


damageddude: Next time the market crashes, I'm maxing out my 401k contributions (buy low/sell high). Next bull market should take me right up to retirement (or at least close enough).


You should always max it if you can. Market timing is incredibly hard because you don't know when it will crash and when it will rise.


Or how far down it will go when it does.
 
2014-07-18 11:59:51 AM

Xyphoid: So you're saying to buy bonds at the artificially low interest rates, at no return, just before the crash wherein interest rates will presumably increase, leaving you holding let's say a $500 bond at 1% interest instead of a $500 bond at 3% interest?


Bond yields move opposite to price. When people are buying lots of bonds, price is driven up, and yield decreases. A crash might see yields go from 1% to (example) 0.6%. If you're holding a 1-year note at 1%, and the market yield is suddenly 0.6%, the price of your note is worth 0.4% more than what you paid for it, minus maybe some transaction fees.

Also, just an FYI, bonds in the US are usually issued at $1000 minimum.
 
2014-07-18 12:00:41 PM

Arkanaut: A crash might see yields go from 1% to (example) 0.6%.


I should specify - I mean a crash in the stock market in which investors flee to bonds.
 
2014-07-18 12:07:15 PM

Arkanaut: Arkanaut: A crash might see yields go from 1% to (example) 0.6%.

I should specify - I mean a crash in the stock market in which investors flee to bonds.


A crash means time to buy for the investor who got out before the crash happened
 
2014-07-18 12:12:16 PM

Debeo Summa Credo: I agree that stocks dropped because stocks were too expensive relative to earnings, which means that stocks did drop because "they were too expensive", contrary to what incompetent doggy doo claimed.


I took "too expensive" to mean people thinking "they're more than they used to be, so they're now expensive." Without any reference to what their actual value is.
 
2014-07-18 12:15:38 PM

Debeo Summa Credo: Marcus Aurelius: SlothB77: QE4.

quantitative easing, artificially low interest rates have incentivized people to buy stocks instead of bonds, where there is no return.  this is being led by the Fed.  Interest rates are being kept artificially low, in defiance of the open market.  this has led to a bubble.

the bubble is being caused by government forces,  not market forces.  specifically, the Federal Reserve Bank.  it is keeping interest rates below the rates the market would set them.  thus, bonds are paying paltry returns.  thus, investors are being forced to buy stocks to get a decent return and companies are being forced to use stock to raise capital.  More exposure in stocks than either side would prefer.

when this bubble bursts everyone will still blame the free market and wall street, though.  i'm not worried about them accidentally laying the blame where it actually should be laid.

You might also observe that the interest rates are being kept low so that investment banks can make an easy buck.  Take the banks out of the equation and we'd get Glass-Steagle back.  Regulator shopping just tops off the reckless banking cake.

You actually think that interest rates are being kept low so the investment banks can make money?

The banks might be profiting from low interest rates, but that's just a side effect. It isn't the intention of the fed to improve bank earnings by keeping rates at historic lows.


They had their way from 2003 through 2007.  I don't see how their influence has diminished any since then.
 
2014-07-18 12:21:58 PM

bdub77: r as I generally do, don't play the game, just hold on for dear life as the markets whipsaw into a new higher bubble.


This.  I might have lost 2-3 years the last crash but I did not lose my shirt panicing or in bonds/money market past when we started recovering.
 
2014-07-18 12:23:56 PM

Debeo Summa Credo: impaler: Debeo Summa Credo: Incontinent_dog_and_monkey_rodeo: People act as though stock prices have no relation to earnings.  Yes, stocks have gone up a bunch since 2009.  Earnings have gone up just as much, if not more.  The S&P is at around a 17 PE, so it's not crashing unless earnings crash.  If companies in the US suddenly lose 20% of their projected earnings, then yes, the market will crash.  But stocks don't move in a vacuum, there has to be a trigger.  The internet bust and the financial crash both had causes, they weren't just stocks dropping because they were "too expensive".

What was the trigger of the internet bust?

Those companies didn't have the corresponding earnings to justify the price.

Which is why people calling today's stock-market a "bubble" because it's now higher are being myopic. S&P/corporate profits are lower than the historical average.

I agree that stocks dropped because stocks were too expensive relative to earnings, which means that stocks did drop because "they were too expensive", contrary to what incompetent doggy doo claimed.

There was no trigger other than the fact that prices were too high and desire to sell at those prices began to outweigh the desire to buy.


It's not entirely that simple.  There were contractions in the Asian market in 1997 and 1998 and the failure of LTCM in 1998 undermined the belief that the ability to make continual profit through mathematical analysis.  The drop in the Dow and Nasdaq in 2000 was a lagging factor to these events, but may have also been exacerbated by the Microsoft anti-trust decision which suddenly introduced uncertainty into the previously untouchable internet sector.

The Dot Com boom was unquestionably an irrational bubble, but it wasn't allowed to snowball in the same way the housing bubble was.  So, the resulting recession was relatively mild and probably would have ended in q4 2001 if 9/11 hadn't happened.
 
2014-07-18 12:24:42 PM

Debeo Summa Credo: Incontinent_dog_and_monkey_rodeo: People act as though stock prices have no relation to earnings.  Yes, stocks have gone up a bunch since 2009.  Earnings have gone up just as much, if not more.  The S&P is at around a 17 PE, so it's not crashing unless earnings crash.  If companies in the US suddenly lose 20% of their projected earnings, then yes, the market will crash.  But stocks don't move in a vacuum, there has to be a trigger.  The internet bust and the financial crash both had causes, they weren't just stocks dropping because they were "too expensive".

What was the trigger of the internet bust?


The realization that many of the companies would never have earnings of any kind.  It was a tulip frenzy, no single "event" was needed to pop it, unlike the "Lehman moment" of the financial crisis.  PEs were the key in both crashes, in both cases they were out of whack with future earnings.
 
2014-07-18 12:26:43 PM

impaler: Debeo Summa Credo: I agree that stocks dropped because stocks were too expensive relative to earnings, which means that stocks did drop because "they were too expensive", contrary to what incompetent doggy doo claimed.

I took "too expensive" to mean people thinking "they're more than they used to be, so they're now expensive." Without any reference to what their actual value is.


That's a bingo.
 
2014-07-18 12:28:11 PM

Incontinent_dog_and_monkey_rodeo: Debeo Summa Credo: Incontinent_dog_and_monkey_rodeo: People act as though stock prices have no relation to earnings.  Yes, stocks have gone up a bunch since 2009.  Earnings have gone up just as much, if not more.  The S&P is at around a 17 PE, so it's not crashing unless earnings crash.  If companies in the US suddenly lose 20% of their projected earnings, then yes, the market will crash.  But stocks don't move in a vacuum, there has to be a trigger.  The internet bust and the financial crash both had causes, they weren't just stocks dropping because they were "too expensive".

What was the trigger of the internet bust?

The realization that many of the companies would never have earnings of any kind.  It was a tulip frenzy, no single "event" was needed to pop it, unlike the "Lehman moment" of the financial crisis.  PEs were the key in both crashes, in both cases they were out of whack with future earnings.


Right. There wasn't a "trigger event". Investors just gradually realized that stock prices were too high relative to earnings and value.
 
2014-07-18 12:32:54 PM

Stile4aly: Debeo Summa Credo: impaler: Debeo Summa Credo: Incontinent_dog_and_monkey_rodeo: People act as though stock prices have no relation to earnings.  Yes, stocks have gone up a bunch since 2009.  Earnings have gone up just as much, if not more.  The S&P is at around a 17 PE, so it's not crashing unless earnings crash.  If companies in the US suddenly lose 20% of their projected earnings, then yes, the market will crash.  But stocks don't move in a vacuum, there has to be a trigger.  The internet bust and the financial crash both had causes, they weren't just stocks dropping because they were "too expensive".

What was the trigger of the internet bust?

Those companies didn't have the corresponding earnings to justify the price.

Which is why people calling today's stock-market a "bubble" because it's now higher are being myopic. S&P/corporate profits are lower than the historical average.

I agree that stocks dropped because stocks were too expensive relative to earnings, which means that stocks did drop because "they were too expensive", contrary to what incompetent doggy doo claimed.

There was no trigger other than the fact that prices were too high and desire to sell at those prices began to outweigh the desire to buy.

It's not entirely that simple.  There were contractions in the Asian market in 1997 and 1998 and the failure of LTCM in 1998 undermined the belief that the ability to make continual profit through mathematical analysis.  The drop in the Dow and Nasdaq in 2000 was a lagging factor to these events, but may have also been exacerbated by the Microsoft anti-trust decision which suddenly introduced uncertainty into the previously untouchable internet sector.

The Dot Com boom was unquestionably an irrational bubble, but it wasn't allowed to snowball in the same way the housing bubble was.  So, the resulting recession was relatively mild and probably would have ended in q4 2001 if 9/11 hadn't happened.


The drop in the Nasdaq beginning in March of 2000 happened after huge gains in the Nasdaq the prior 20 mos or so after LTCM. It wasn't "lagging" LTCM or the Asian crisis i'd say - totally independent.

And it wasn't that it wasn't allowed to snowball - it was a different type of crisis. People losing half their stock market savings isn't nearly as traumatic as losing 40% of the value of your home when your equity might have been much less than that to start, such as in the housing crisis. All IMO.
 
2014-07-18 12:37:10 PM
Alan Greenspan warned everyone about the stock market's "irrational exuberance" in 1996.

The bubble finally burst in 1999.

/Keep buying stocks until 2017.
//Sell your stocks.
///Profit.
////Maybe.
 
2014-07-18 12:47:25 PM

Incontinent_dog_and_monkey_rodeo: Debeo Summa Credo: Incontinent_dog_and_monkey_rodeo: People act as though stock prices have no relation to earnings.  Yes, stocks have gone up a bunch since 2009.  Earnings have gone up just as much, if not more.  The S&P is at around a 17 PE, so it's not crashing unless earnings crash.  If companies in the US suddenly lose 20% of their projected earnings, then yes, the market will crash.  But stocks don't move in a vacuum, there has to be a trigger.  The internet bust and the financial crash both had causes, they weren't just stocks dropping because they were "too expensive".

What was the trigger of the internet bust?

The realization that many of the companies would never have earnings of any kind.  It was a tulip frenzy, no single "event" was needed to pop it, unlike the "Lehman moment" of the financial crisis.  PEs were the key in both crashes, in both cases they were out of whack with future earnings.


There actually was an event that triggered the tech collapse circa 2000 (beyond the general sketchiness of many of the Internet companies at the time), although it was weird and hidden:  The Y2K thing.

This caused a lot of companies to push forward a lot of IT spending into
calendar year 1999, with a corresponding reduction in 2000.  Bubble/collapse.
 
2014-07-18 01:46:34 PM

The Stealth Hippopotamus: SlothB77: QE4.

quantitative easing, artificially low interest rates have incentivized people to buy stocks instead of bonds, where there is no return.  this is being led by the Fed.  Interest rates are being kept artificially low, in defiance of the open market.  this has led to a bubble.

the bubble is being caused by government forces,  not market forces.  specifically, the Federal Reserve Bank.  it is keeping interest rates below the rates the market would set them.  thus, bonds are paying paltry returns.  thus, investors are being forced to buy stocks to get a decent return and companies are being forced to use stock to raise capital.  More exposure in stocks than either side would prefer.

when this bubble bursts everyone will still blame the free market and wall street, though.  i'm not worried about them accidentally laying the blame where it actually should be laid.

All true. But I would also add that the market unhooked from the real world in the 90s. I mean it wasn't in lock step before then but once the day trader started to become a good percentage of the market it was completely gone. Now with micro traders it's like that mechanical horse racing game.

[i.imgur.com image 500x393]


Yeah. This whole discussion seems to hinge on a totally subjective and impossible to pinpoint definition of "decent return."
 
2014-07-18 01:46:46 PM

Smeggy Smurf: Arkanaut: Arkanaut: A crash might see yields go from 1% to (example) 0.6%.

I should specify - I mean a crash in the stock market in which investors flee to bonds.

A crash means time to buy for the investor who got out before the crash happened


The scenario that bdub77 was talking about was anticipating a stock market crash, buying lots of bonds, and selling them when the stock market crash actually happens.
 
2014-07-18 01:49:07 PM

bdub77: Not really. There's nothing wrong with cash buy backs per se, they are a legitimate way to pay back investors in the same way stocks used to pay a dividend.

But what you have to understand is that this is the way productivity gains go to the 1%. The executives of the company, who make most of their money on stock options, give themselves money out of the coffers of the company for short term gain.

Eventually, that's all they do, and long term the company inevitably suffers as they try to cut costs to boost share price. By cutting costs I of course mean they lay off the people who actually produce for them, and eventually you have an IBM on your hands, a company bloated with middle management, a bunch of dead wood (most people with a brain have left for a better job with better pay) and no real product to speak of outside of marketing drivel. Oh every few years they buy a company (acquire someone else's R&D) but it's not integrated with the company and rarely ever pays for itself as the producers of the acquired company jettison or are laid off before integration is complete.

Microsoft/Nokia is your latest example. Here's a company making hand over fist quarter after quarter but they're going to lay of 18,000. It's hard to argue that leadership isn't doing what it's goals are, cutting bad programs to provide maximum shareholder value. However, it's also hard to argue that it hurts a lot of people in the process.

In the end we should all be working a lot less than we are, not because we feel entitled to it but because there's no reason to work as we do anymore. We have an absolutely ridiculous system considering the ubiquity of technology. The people with capital and means know it. The battle is already upon us, we just don't know it yet. It's started in other countries, but it's on its way.


Friedman was such a POS.
 
2014-07-18 01:55:34 PM
So, TFA is making the claim that buybacks is driving the rise in the stock indices. But if a company is buying back their own stock, they're removing shares from circulation in the market, right? The fundamentals of the company are still the same - if anything they would be slightly worse because they're moving cash out the door. Shouldn't stock indices re-weight themselves to account for that, in the same way that a reverse split of a major stock doesn't make the index rise?

Don't know if anyone can shed any light on this matter.
 
2014-07-18 02:08:59 PM

Arkanaut: So, TFA is making the claim that buybacks is driving the rise in the stock indices. But if a company is buying back their own stock, they're removing shares from circulation in the market, right? The fundamentals of the company are still the same - if anything they would be slightly worse because they're moving cash out the door. Shouldn't stock indices re-weight themselves to account for that, in the same way that a reverse split of a major stock doesn't make the index rise?

Don't know if anyone can shed any light on this matter.


I'm not sure I understand your question, but generally stock indices (not the DJIA) weight companies based on their market capitalization. So if am company buys back its own shares, the stock price may increase, but the number of outstanding shares will decrease.
 
2014-07-18 02:13:09 PM

Moopy Mac: Arkanaut: So, TFA is making the claim that buybacks is driving the rise in the stock indices. But if a company is buying back their own stock, they're removing shares from circulation in the market, right? The fundamentals of the company are still the same - if anything they would be slightly worse because they're moving cash out the door. Shouldn't stock indices re-weight themselves to account for that, in the same way that a reverse split of a major stock doesn't make the index rise?

Don't know if anyone can shed any light on this matter.

I'm not sure I understand your question, but generally stock indices (not the DJIA) weight companies based on their market capitalization. So if am company buys back its own shares, the stock price may increase, but the number of outstanding shares will decrease.


In that case, TFA is bullshiat.

//wouldn't be the first time from that source.
 
2014-07-18 02:13:42 PM

Moopy Mac: Arkanaut: So, TFA is making the claim that buybacks is driving the rise in the stock indices. But if a company is buying back their own stock, they're removing shares from circulation in the market, right? The fundamentals of the company are still the same - if anything they would be slightly worse because they're moving cash out the door. Shouldn't stock indices re-weight themselves to account for that, in the same way that a reverse split of a major stock doesn't make the index rise?

Don't know if anyone can shed any light on this matter.

I'm not sure I understand your question, but generally stock indices (not the DJIA) weight companies based on their market capitalization. So if am company buys back its own shares, the stock price may increase, but the number of outstanding shares will decrease.


Re: Stock Splits

In the case of a stock split the market cap of a company does not change, as the number of outstanding shares increases at the same ratio as the price decreases. So there is no need to change the weighting on any specific company.

The DJIA uses price-weighting, so they do need to make an adjustment to their calculation when a stock split occurs.
 
2014-07-18 02:17:49 PM

Arkanaut: Moopy Mac: Arkanaut: So, TFA is making the claim that buybacks is driving the rise in the stock indices. But if a company is buying back their own stock, they're removing shares from circulation in the market, right? The fundamentals of the company are still the same - if anything they would be slightly worse because they're moving cash out the door. Shouldn't stock indices re-weight themselves to account for that, in the same way that a reverse split of a major stock doesn't make the index rise?

Don't know if anyone can shed any light on this matter.

I'm not sure I understand your question, but generally stock indices (not the DJIA) weight companies based on their market capitalization. So if am company buys back its own shares, the stock price may increase, but the number of outstanding shares will decrease.

In that case, TFA is bullshiat.

//wouldn't be the first time from that source.


The article says this:

"U.S. stocks are now about 80% overvalued on certain key long-term measures, according to research by financial consultant Andrew Smithers, the chairman of Smithers & Co. and one of the few to warn about the bubble of the late 1990s at the time."

B.S.

There were many more groups warning about the bubble in 99/00 than there were in 2008. And that despite there being a ton more "financial consultants" in 2008.
 
2014-07-18 03:24:32 PM
I'm just worried about another Stock Market "crash" and the college cost/loan bubble bursting at the same time.

/Scared about a Great Recession 2.0
 
2014-07-18 03:43:02 PM

Arkanaut: So, TFA is making the claim that buybacks is driving the rise in the stock indices. But if a company is buying back their own stock, they're removing shares from circulation in the market, right? The fundamentals of the company are still the same - if anything they would be slightly worse because they're moving cash out the door. Shouldn't stock indices re-weight themselves to account for that, in the same way that a reverse split of a major stock doesn't make the index rise?

Don't know if anyone can shed any light on this matter.


You are correct, theoretically, as buying back shares shouldn't add to the underlying intrinsic value of the firm. But their purchasing of stocks adds to demand for stocks, raising the price and therefore the market value of the company. Think about it as if they are buying shares of every other stock, or some other asset rather than their own stock.

Doesn't it make sense that companies adding to total stock demand buy buying shares increase the value of the stock market relative to them using the cash for other purposes, such as buying bonds or distributing dividends?
 
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