"Maybe the Schiller PE is not a prefect predictor of what the market will do, but massive ignorance, and a herd mentality in investing that leads to massive inflows of cash into any particular asset class will lead to a bubble that will eventually burst. That is a certainty. Over the long term the intrinsic worth of an investment (i.e., the asset's ability to earn money) will determine its price."
I respect everyone on here with the possible exception of the robot Flagpole, but there is much difficulty with the above statement.
I have already suggested that this time things really are different, and I have said why, and how it will manifest--and I have been correct. So far my only mis-judgment has been one of the magnitude of the effect.
mellon, you are ignoring so much, for example your idea of "intrinsic worth" is limited to cash flow generation. Nothing could be farther from the truth, especially for the international investment classes. Huge psychological drivers that you ignore are prestige, wealth preservation, and specific utility other than cash flow generation, such as convertibility and transactional economy. Those things can, and do, factor into "the intrinsic worth of an investment over the long term".
Past events are only descriptive of past events, and are not predictors of future certainties, as you suggest.
Structural factors can always change, and that is probably the only temporal certainty, although one cannot say with any certainty precisely how they will change. War, electrical infrastructure failure, algos, currency manipulation, it's all tied together, for the political benefit of the larger political powers. Ultimately it will be political shifts, and shifts in the quality of rule, that will determine the structural factors that shape the conditions under which perceptions of "intrinsic worth" are made.
While I am hesitant to buy back into the markets at this point, I am going to buy back into cryptos: 50% BTC, and 50% a suite of others. I did very well on my first crypto foray, but did not commit very much to it. Same this time, I won't commit very much--although this time, I am likely to hold it for quite a bit longer.
Some say that there is no intrinsic value to cryptos. I couldn't disagree more. There are practical utilities for wealth transfer and currency conversion, and as such cryptos represent a tool, which like other tools is "worth" something to anybody who believes they can make use of the tool to better their situation.
Similarly, fiat money is a tool, against which cryptos compete for certain purposes. Both rely on the faith of the user base in order to remain viable. In the case of fiat, it is faith in the Fed; in the case of cryptos, it is faith in the user base itself. With the Fed, one is guaranteed a constant, grinding devaluation of the purchasing power every year, possibly punctuated by dramatic losses of purchasing power in hyperinflation events. Also, with the Fed one is guaranteed that not all members of the user base are there voluntarily--many are there under the threat of sanction for being elsewhere, hence the illegality of starting your own competing "currency". With a crypto user base, one is guaranteed nothing, other than perhaps the fact that all members within the user base are there voluntarily--which is huge. Even if the base is rife with speculators, it does represent a type of "free market", with extremely low transaction fees.
And there is no structural crypto equivalent to unlimited printing-driven hyperinflation events. If the "value" of a crypto plummets, it will be due to a loss of confidence among the voluntary user base, which could arise from a few different scenarios. The choice is between placing your bet on a voluntary user base, and on the Fed. For me, that's an easy choice. Of course, I'm talking about cryptos vs USD, not comparing other investments.
The only question with cryptos is how much value is needed to satisfactorily service the user base. Currently the number of different cryptos is theoretically unlimited. Some have already gone defunct. A few will survive, and the total number will be capped, but the question will be what level of absolute market cap will suffice to meet the needs of the users. Of course as things mature, transaction costs will likely increase, which might drive the per-coin price higher...but the larger question is how much is actually needed? How much money is being moved around, how big a need is there for currency conversion, and in what direction are those activities likely to proceed in the future?
Governments will loom large in that analysis, and you can bet that they will rein in cryptos at some point...or manipulate the crypto landscape such that it is they who are essentially in control. At that point they may be no better than fiat, but that point is still a ways off. Why? Because those in the know are all crypto owners, and want the current ride to continue as long as possible. How do I know this? I don't. But I do know a small and critical segment, your jaw would drop if you knew who they were...and they are all personally into cryptos (BTW just prior to cryptos they were also into metals and some commodities).
So I will be making another small buy, USD 20k--one bitcoin, and 10k worth of ETH, etc., and see how it goes.
As for the markets, I don't specifically need to be in at the moment, but what can I say. Missing out is possibly equally psychologically damaging as is losing some paper value.
I was cleaning out some old stuff the other day and came across a copy of Kiyosaki's book "Rich Dad's Guide to Investing". How sober, how sensible...and how antiquated. You know, for a long time, the world was small. Even after the advent of jet travel and electronic communication, the spread of information took time, because although the spread of data was becoming instantaneous, those data were very narrow, and required intelligent interpretation.
This new era permits the instantaneous and complete transmission of sufficient amounts of data to enable the communication of an entire scenario, and all the information it contains. Now, entire stories are transmitted instantly--and consumed equally instantly. The important thing is that the meaning is what is instantly conveyed. Never before has this been the case. Credible editors, commentators, and news anchors are no longer required. This has never before been the case in all of history. The world is much smaller and much quicker than it was in Kiyosaki's time, and it is subject to different, and possibly more effective and insidious, means of control, than are contemplated in his book.
And these are recent changes. We are in the absolute earliest dawn of the new era. At this point, absolutely nobody can make any remotely credible predictions about what the future holds, based on past human experiences. There used to be places to hide. No longer. There used to be places to get away. No longer. There used to be disconnected places. No longer. There used to be privacy. No longer. There used to be axioms. No longer. Everything is changing, and changing rapidly. Even those in control aren't, and they know it--which is why have overwhelmingly converted from statesmanship, to lining their own pockets while they can.
IMO absolute chaos is coming, the only question is how soon. In many respects we are already there, fragmented into increasingly smaller communities and increasingly smaller spheres of influence and concern. It's like a sort of entropy, and like a sort of reductio ad absurdum, where when every individual can be treated as identical and fungible units, the manipulation thereof, en masse, becomes very economical. And that manipulation doesn't even need to be sustained, in order to be successful, when the goal is short-term gain.
Markets are not "all psychology", as some believe--there is much structuralism involved, much governmentalism, much sociology. Sure there are still some "individual actors" and sure some can still make and move markets, but those so-called "individual actors" are actually institutions, not individual people--and even institutions are feeling the pain of chaos. Not long ago, individual people lost much of their freedom of action, now institutions are going through the same thing.
Those who say that markets can't rise more are absolutely wrong. In this unprecedented era we are entering, things can happen that are beyond the scope of current prediction. Seen in an historical context, things will make no sense--but history is now dead. Yes after-the-fact you can try to construct an historiographical argument to suit your purposes, but that's only after events have already happened.
Having said all that, I STILL hesitate to re-enter the markets.